Skip to content

NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Overview of Alternative Investment Funds (AIFs)

A Category III AIF has a hurdle rate of 10% per annum with a 20% performance fee on returns above the hurdle, with no catch-up. An investor's Rs 2 crore commitment grows to Rs 2.5 crore at year end (before fees, ignoring management fee). What is the performance fee payable?

The performance fee is Rs 6 lakh. Profit is Rs 50 lakh, the hurdle is Rs 20 lakh, so the excess is Rs 30 lakh, and 20% of that is Rs 6 lakh. With no catch-up, the fee applies only to returns above the hurdle.

  1. ARs 10 lakh
  2. BRs 6 lakhCorrect
  3. CRs 4 lakh
  4. DRs 8 lakh

Explanation

Profit = 2.5 - 2.0 = Rs 0.5 crore = Rs 50 lakh. Hurdle return = 10% of Rs 2 crore = Rs 20 lakh. Excess = Rs 30 lakh. Fee = 20% of 30 lakh = Rs 6 lakh. Rs 10 lakh wrongly applies the fee to total profit; Rs 4 lakh applies it to the hurdle amount only.

Did you get it right without looking?

One question tells you little. A timed set on Overview of Alternative Investment Funds (AIFs) shows your real accuracy, how long you take and where you lose marks.

Practise Overview of Alternative Investment Funds (AIFs)Free diagnostic mock

More Overview of Alternative Investment Funds (AIFs) questions