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Meher Baba gave the following explanation to the mandali about the difference between the Avatar and the Perfect Masters:

Every God-Realized personality is perfect. However, those who come down and act as Masters – the Sadgurus and Avatar – come down with their minds universal and use divine powers to work for others. There is a place, Vidnyan Bhumika, where the Masters work and rest. It is similar to a threshold in between two places, where they can manage works both for the higher and lower worlds. One aspect is the preparation of souls from the lower world and the deliverance of them to the higher world, eventually realizing them. The Masters come down with the special purpose of bringing ripe souls to the highest state.

When the Perfect Masters come down with this duty to the world and work every day with the people of the world, they descend with universal mind. Through the universal mind, they take upon themselves the sins (bad sanskaras) of the ripe souls and thereby suffer themselves. They experience bliss through the soul and suffering through the mind. They enjoy the bliss through the soul, which is one with the Almighty, and bear the universal suffering through their universal mind.

The one who manifests as the Avatar has to give a spiritual push to the whole world. This is greater than the circle preparation work which all Sadgurus have to perform. This great push is the main difference in their duties.

Besides this difference, the Avatar is always perfect in all respects, spiritually as well as materially, and in particular, physically. The Avatar always has a charming personality with a beautiful, symmetrical face and body; while the Perfect Masters are generally of odd size and shape physically, with certain defects sometimes so abhorrent that one does not even like to look at them.

Christ, Muhammad, Zarathustra, Buddha, Ram and Krishna were Avatars and hence had charming personalities. So is mine. Upasni Maharaj, Narayan Maharaj and such present Perfect Masters have one personal defect or another. Upasni Maharaj's stature is too big – like a giant. Narayan Maharaj is too small, short in stature – like a dwarf. But this physical difference between the Avatar and Sadgurus makes no real difference in their spiritual status, which is always divine.

Lord Meher, 1st. ed., Bhau Kalchuri, Vol. 4, p. 1259.

The perfect master acts, whereas the avatar becomes that.

The difference between the Avatar (Rasool, Prophet) and the Sadguru (Qutub, Perfect Master) is that the Qutub, after going through the whole process of evolution, reincarnation and Realization, enters and lives the Life of God, whereas the Avatar has not to go through the process of evolution at all. He directly becomes man.

In living the Life of God, both the Sadguru and the Avatar are equal. Both are leading God's Life, and at the same time both are at every level of life in illusion. Simultaneously, they are on the level of the lowest to the highest. The most important difference is that the Qutub acts   on that level, and the Avatar becomes that. The Qutub or Sadguru, who is God, suppose he comes down to the level of a confessor and confesses to God; it means that God (in the human form of the Sadguru) is acting as a confessor confessing to God. He acts like a confessor, and yet while acting, he is conscious of his Godhood. The Avatar actually becomes the confessor at that moment, and yet while becoming an ordinary confessor, he still experiences consciously his Godhood, and both the Avatar and the Sadguru simultaneously retain the divine consciousness of their Godhood.

Meher Baba gave another example of the Avatar's becoming and the Sadguru's acting on various levels:

To make the point of acting and becoming clear, many examples can be quoted – innumerable examples. For example, the Sadguru cannot and will not fall ill. When he appears to have fallen ill, he acts. When people see the Avatar ill, however, he has actually fallen ill. And though he has fallen ill, he has at his back Infinite Knowledge, Power and Bliss. On every plane the Sadguru acts like a man of that plane. But the Avatar becomes that man of the plane, and that is why the Avatar can give a universal push.

God is everything and in everyone. The Avatar is not only everything and in everyone, but he becomes everything and everyone. Therefore, the fundamental difference between the Avatar and the Sadguru is that on every level and on all planes the Perfect Master acts, whereas the Avatar becomes that.

(Lord Meher, 1st. ed., Bhau Kalchuri, Vol. 12, pp. 4370 - 4371.

There is no difference in consciousness of the Avatar and a Sadguru, or in their perfection ... Both are one with God. Both experience infinite power, knowledge and bliss, and both use these aspects of sat-chit-anand for the universe. The difference is in the scope of their working. Perfect Master works for the selected few in a chosen way and for the universe in a general way. The Avatar works for the selected few in a special way and for the universe in a chosen way. So although both work for the universe and the field of their working is not limited, the scope of their work is different.

(Lord Meher, New Vol—3274-75)

Difference between Avatar & Sadguru is tabulated as under:

Sl.No Areas of comparison Sadguru Avatar
1 Consciousnesses I am God, Ahm Brahmasmi Same as of Sadguru
2 Working  domain One life time 700 to 1400 years
3 Scope of spiritual help to other Can give realisation to many in His life-time To many ( unlimited) All in creation
4 Nature of working Act to help to other Becomes to help other
5 Gender Male and female both Only male
6 Selection of Parents Cannot Selects of His  own
7 Selection of place of birth and Parents Cannot Selects of His own
8 Ascent and Descent Man becoming God- Man-God God becoming man- God-man
9 Suffering Suffers for humanity Suffers for the universe
10 Personality Not beautiful Always beautiful