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Formula sheet/NISM Series X-A: Investment Adviser (Level 1)/Investment Through Managed Portfolio
[ INVESTMENT THROUGH MANAGED PORTFOLIO ]

PMS Fee Structure: Hurdle Rate & Performance Fee

Fixed Management Fee:Fee=Fee%×[(Opening Value+Closing Value)/2](charged on average portfolio value)\text{Fixed Management Fee}: Fee = Fee\% \times [ (\text{Opening Value} + \text{Closing Value}) / 2 ] (\text{charged on average portfolio value})
Hurdle Target:Hurdle Target=Capital×(1+Hurdle Rate)\text{Hurdle Target}: \text{Hurdle Target} = Capital \times (1 + \text{Hurdle Rate})
Performance Fee(Hurdle−based,no catch-up):Fee=Performance Fee%×max(0,Portfolio Value after Fixed Fee−Hurdle Target)\text{Performance Fee} (Hurdle-based, \text{no catch-up}): Fee = \text{Performance Fee}\% \times max( 0, \text{Portfolio Value after Fixed Fee} - \text{Hurdle Target} )
Net Redemption Value:Net Value=Gross Value−Other Expenses−Fixed Fee−Performance Fee−Exit Load\text{Net Redemption Value}: \text{Net Value} = \text{Gross Value} - \text{Other Expenses} - \text{Fixed Fee} - \text{Performance Fee} - \text{Exit Load}
Variables

Capital: Initial investment; Hurdle Rate: Minimum return threshold before a performance fee applies; Performance Fee %: Share of profit above the hurdle kept by the PMS manager; Exit Load: % charged on the redemption value at exit.

Exam note

A "no catch-up" hurdle means the performance fee applies only to profit above the hurdle, not to the full profit once the hurdle is crossed — check whether a problem states a catch-up clause before applying this formula as-is.

Worked example
PMS Gross vs. Net Returns with Hurdle & Performance Fees

A client invests Rs 1.00 Crore in a Discretionary PMS. Over 1 year, gross portfolio profit is 20.0% (Gross Value = Rs 1.20 Cr). Fee structure: Other operating expenses = 0.50% of gross value; Fixed Management Fee = 1.50% of average portfolio value; Hurdle Rate = 10.0% p.a.; Performance Fee = 20.0% of profits above hurdle rate (no catch-up); Exit Load = 2.0% on terminal redemption. Compute Net Value, Total Fee Outgo, Gross Return %, and Net Return %.