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

A PMS portfolio has a high-water mark of Rs 120 per unit of NAV. It opened the year at Rs 100 per unit and closed at Rs 126. The performance fee is 20% charged only on returns above the high-water mark, with no hurdle. What is the performance fee per unit?

The performance fee is Rs 1.20 per unit. Only the NAV above the high-water mark of Rs 120 is chargeable, which is Rs 6, and 20% of that is Rs 1.20. Charging on the full gain from Rs 100 would wrongly overstate the fee.

  1. ARs 1.20Correct
  2. BRs 5.20
  3. CRs 0.00
  4. DRs 4.00

Explanation

The fee applies only to the gain above the high-water mark. The NAV of 126 exceeds the mark of 120 by Rs 6, so the fee is 20% of 6 = Rs 1.20. Charging on the total gain of 26 gives Rs 5.20, which ignores the high-water mark, and 20% of 20 gives Rs 4.00, which is also wrong.

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