NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Role of Portfolio Managers
A PMS client invests Rs 50,00,000 at the start of the year. At year end the portfolio value is Rs 58,00,000 before fees. Fixed management fee charged is Rs 1,00,000 for the year. What is the net return to the client for the year?
The net return is 14%. The portfolio gained Rs 8,00,000 before fees, the Rs 1,00,000 management fee reduces this to Rs 7,00,000, and dividing by the Rs 50,00,000 invested gives 14%. Ignoring the fee would wrongly give 16%.
- A16.0%
- B14.0%Correct
- C18.0%
- D12.0%
Explanation
Gain before fee = 58,00,000 - 50,00,000 = Rs 8,00,000. After the fee of Rs 1,00,000 the net gain is Rs 7,00,000. Net return = 7,00,000/50,00,000 = 14%. 16% ignores the fee, which is the key mistake.
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