NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Manager
Mr Raman invests Rs 1,00,000 with a portfolio manager who charges a 2% annual fixed management fee on the opening value, payable at year end. The gross portfolio value at end of the year is Rs 1,20,000 before fee. What is Mr Raman's net return for the year?
The net return is 18%. The fee is 2% of the opening Rs 1,00,000, which is Rs 2,000, so the ending value after fees is Rs 1,18,000, a gain of Rs 18,000 on Rs 1,00,000. Charging on closing value would wrongly give 17.6%.
- A20.0%
- B18.0%Correct
- C17.6%
- D22.0%
Explanation
Fee = 2% of Rs 1,00,000 opening value = Rs 2,000. Net value = 1,20,000 - 2,000 = Rs 1,18,000. Net return = 18,000/1,00,000 = 18%. Charging the fee on closing value (Rs 2,400) would give 17.6%, which uses the wrong base.
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