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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Collective Investment Vehicles

A Category III Alternative Investment Fund (AIF) holds units worth ₹40 crore at start, and the fund's NAV rises to ₹46 crore at year-end with no flows. The fund charges a performance fee of 20% on returns above a hurdle of 8% per annum, with fee computed on the excess over the hurdle only (no catch-up). What is the performance fee?

The performance fee is ₹0.56 crore. The fund gained ₹6 crore, the 8% hurdle is ₹3.2 crore, so the excess is ₹2.8 crore, and 20% of that excess gives ₹0.56 crore. With no catch-up, the fee applies only above the hurdle.

  1. A₹0.8 crore
  2. B₹0.56 croreCorrect
  3. C₹1.2 crore
  4. D₹0.32 crore

Explanation

Gain is 6 crore, i.e., 15% on 40 crore. The hurdle amount is 8% of 40 = 3.2 crore. The excess is 6 - 3.2 = 2.8 crore, and 20% of 2.8 = 0.56 crore. Charging 20% on the whole gain gives 1.2 crore, which ignores the hurdle. Fee on the hurdle amount alone gives 0.64, and 20% of 4 is 0.8, both wrong bases.

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