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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Regulatory, Governance and Ethical Aspects of Portfolio Managers

A PMS client's portfolio value at the previous high-water mark was Rs 1,20,00,000. The portfolio fell to Rs 1,05,00,000 and later rose to Rs 1,32,00,000. The profit-share is 20% of gains above the high-water mark with no hurdle and no other adjustments. What is the performance fee?

The performance fee is Rs 2,40,000. Under the high-water mark principle, the fee applies only to value above the previous peak of Rs 1.20 crore. The portfolio is now Rs 1.32 crore, giving a Rs 12 lakh gain, and 20% of that is Rs 2.4 lakh.

  1. ARs 2,40,000Correct
  2. BRs 5,40,000
  3. CRs 3,00,000
  4. DRs 1,50,000

Explanation

Fee is charged only on value above the earlier peak of Rs 1,20,00,000. Gain above it = 1,32,00,000 - 1,20,00,000 = Rs 12,00,000. Fee = 20% x 12,00,000 = Rs 2,40,000. Rs 5,40,000 wrongly uses the gain from the low of Rs 1,05,00,000 (Rs 27 lakh x 20%).

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