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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Operational Aspects of Portfolio Managers

A PMS client invested Rs 50 lakh at the start of the year. At year-end the portfolio value was Rs 58 lakh before fees. The portfolio manager charges a performance fee of 20% of profits, with no hurdle and no other fees. What is the client's net return for the year?

The net return is 12.8%. The gross profit of Rs 8 lakh is reduced by the 20% performance fee of Rs 1.6 lakh, leaving Rs 6.4 lakh on an investment of Rs 50 lakh. The 16% figure is the gross return before the fee.

  1. A12.8%Correct
  2. B16.0%
  3. C20.0%
  4. D13.6%

Explanation

Profit is 58 - 50 = Rs 8 lakh. Performance fee is 20% of 8 = Rs 1.6 lakh. Net profit is 6.4 lakh, and 6.4/50 = 12.8%. The 16% figure is the gross return and ignores the fee.

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