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

Mr. Rohan Mehta, a 45-year-old businessman, is considering a Category III AIF. The manager charges a hurdle rate of 10% per annum with a 20% carry on profits above the hurdle, with no catch-up. He invested Rs 1,00,00,000 and the fund's gross return for the year was 18%. Ignoring other fees and taxes, what is the carry payable to the manager?

The carry is Rs 1,60,000. Excess return over the 10% hurdle is 8%, or Rs 8,00,000 on Rs 1 crore, and 20% of that excess is Rs 1,60,000. With no catch-up, carry applies only above the hurdle.

  1. ARs 1,60,000Correct
  2. BRs 3,60,000
  3. CRs 1,80,000
  4. DRs 2,00,000

Explanation

Profit above the hurdle is 18% - 10% = 8% of Rs 1 crore = Rs 8,00,000. Carry at 20% with no catch-up = Rs 1,60,000. Rs 3,60,000 wrongly applies carry to the entire profit of Rs 18 lakh, and Rs 1,80,000 applies 10% to the whole profit.

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