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Do we need User Profile service application for managing permissions and groups in SharePoint?

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The short answer: no. The long answer: the UP service app is used for administering:

  • User Profiles
  • Profile Sync
  • Audiences
  • MySite Host
  • MySite
  • Social tags and notes

This MSDN article gives a nice overview of the user profile service app.

  • You also need it to support Hybrid workloads with Office 365. – Matthew McDermott Oct 7 '16 at 11:45

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