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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Overview of Alternative Investment Funds (AIFs)

An AIF has a hurdle rate of 10% per annum with a full catch-up and 20% carried interest. An investor committed ₹1 crore, fully drawn at the start, and after one year the investment value before fees is ₹1.30 crore. Ignoring management fees and taxes, what is the carried interest payable to the manager?

The carried interest is ₹6 lakh. Profit of ₹30 lakh exceeds the ₹10 lakh hurdle, so a full catch-up lets the manager take 20% of the entire profit, which is ₹6 lakh. Taking 20% only of the excess over the hurdle would wrongly give ₹4 lakh.

  1. A₹6 lakhCorrect
  2. B₹10 lakh
  3. C₹4 lakh
  4. D₹2 lakh

Explanation

Profit is ₹30 lakh, above the 10 lakh hurdle (10% of ₹1 crore), so full catch-up applies. With full catch-up, the manager gets 20% of total profit: 20% × 30 = ₹6 lakh. Charging 20% only on the excess over the hurdle (20% × 20 = ₹4 lakh) ignores the catch-up. ₹10 lakh is the hurdle amount itself, not the carry.

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