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

An investor commits Rs 2 crore to an AIF. The fund has a hurdle rate of 10% per annum, a 20% carry above the hurdle with no catch-up, and the investor's capital grows to Rs 2.60 crore at the end of one year before carry. The carry applies only to the profit above the hurdle. What is the net value to the investor after carry?

The net value is Rs 2.52 crore. Profit is Rs 0.60 crore, the hurdle is Rs 0.20 crore, so the excess is Rs 0.40 crore. Carry of 20% on this excess is Rs 0.08 crore, which is deducted from Rs 2.60 crore.

  1. ARs 2.48 crore
  2. BRs 2.52 croreCorrect
  3. CRs 2.40 crore
  4. DRs 2.56 crore

Explanation

Hurdle amount = 10% of Rs 2 crore = Rs 0.20 crore, so excess profit = Rs 0.60 crore - Rs 0.20 crore = Rs 0.40 crore. Carry = 20% of Rs 0.40 crore = Rs 0.08 crore (no catch-up). Net value = Rs 2.60 crore - Rs 0.08 crore = Rs 2.52 crore. Taking carry on the whole profit (20% of Rs 0.60 crore = 0.12) would give Rs 2.48 crore, which is wrong.

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