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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Manager

Under PMS regulations, a portfolio manager charges a performance-based fee with a hurdle rate of 10% and a profit share of 20% above the hurdle on a Rs 60 lakh corpus. If the portfolio return is 18%, what is the performance fee, assuming it applies only to returns above the hurdle?

The performance fee is Rs 96,000. The return above the 10% hurdle is 8% of Rs 60 lakh, which is Rs 4,80,000, and the manager takes 20% of that excess as the profit share.

  1. ARs 96,000Correct
  2. BRs 2,16,000
  3. CRs 1,20,000
  4. DRs 1,08,000

Explanation

Excess return = 18% - 10% = 8% of Rs 60 lakh = Rs 4,80,000. Fee = 20% of 4,80,000 = Rs 96,000. Rs 2,16,000 applies 20% to the whole 18% return; Rs 1,20,000 applies 20% to the hurdle-return only; Rs 1,08,000 is 18% of 6,00,000 mis-scaled.

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