Skip to content

NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Manager

A client invests Rs 1,00,000 in a PMS with a 10% hurdle rate, 20% profit share on returns above the hurdle, with high-water mark. At the end of year 1 the value is Rs 1,30,000 before performance fee. Performance fee is charged only on the excess over the hurdle (Rs 1,10,000). What is the fee and the post-fee value?

The fee is Rs 4,000 and the post-fee value is Rs 1,26,000. The excess over the 10% hurdle value of Rs 1,10,000 is Rs 20,000, and 20% of that is Rs 4,000, which is deducted from Rs 1,30,000.

  1. AFee Rs 4,000; value Rs 1,26,000
  2. BFee Rs 6,000; value Rs 1,24,000Correct
  3. CFee Rs 10,000; value Rs 1,20,000
  4. DFee Rs 4,000; value Rs 1,34,000

Explanation

Excess over hurdle = 1,30,000 - 1,10,000 = 20,000. Fee at 20% = 4,000? Check: 20% of 20,000 = 4,000, so the fee is Rs 4,000 and value Rs 1,26,000. The first option is therefore correct as computed, not Rs 6,000 which would apply 20% to 30,000 (the full profit).

Did you get it right without looking?

One question tells you little. A timed set on Portfolio Manager shows your real accuracy, how long you take and where you lose marks.

Practise Portfolio ManagerFree diagnostic mock

More Portfolio Manager questions