Charges in PMS


The PMS charges various fees for the unique skills and knowledge they apply in managing its clients'portfolio and taking investment decisions on their behalf.

The following are the charges that may or may not be charged by the PMS providers:

Management Fee:

This is the fee charged by the management on account of services provided by them to their clients in respect of monitoring and handling the clients' account.The fee is charged on the basis of daily average Net Asset Value at the end of each quarter or withdrawal of funds whichever is earlier.

Performance Fee:

It is provided as an incentive to the fund manager to align their interest with that of investor’s .The portfolio manager tries to outperform the market and when he is able to do so, then they charges performance fees over the profits earned above the specified level. It is governed by two factors namely Hurdle rate and High Water Mark Principle which are explained below:

High Watermark Principle:

 It is the minimum value of the investment, over which only the fund manager will receive an incentive.Suppose an investment of 30 lakhs appreciates to 35 lakhs. Consequently the fund manager receives compensation against the profit. Now, 35 lakhs becomes the watermark. Which means if the investment value depreciates below 35lakhs and then appreciates to some other value, the fund manager will receive incentive over & above the value of 35 lakhs.

Hurdle Rate:

 It is the minimum amount of return over which the fund manager receives a percentage of profitability of the investment over and above the fixed charge.

Example: If the hurdle rate is 10% and investments rate of return is 20%, then the fund manager will receive 20% of the (20-10=10) 10% surplus return over and above the fixed charges.

Setup Fee / Upfront Fee:

This is the fees charged by PMS providers for setting up an account for you initially.It is one time payable fees usually charged 2-2.5% but now a days, no such fees is charged by companies due to increasing competition and maintaining customer relationship.

Exit Load:

The amount charged by the PMS provider when investment is redeemed before the minimum specified period is known as Exit load. This is done to prevent the investors from disposing off their investments at short intervals and acts as an effective tool to make them hold their investments for longer period of time.

For example: An investor has total portfolio worth 25 lakhs whose specified minimum holding period is 12 months .The Exit load charged by the PMS provider is 2%. Now if an investor redeemed its investment before 12 months.

The exit load will be applicable as follows:

Redeemable investment value = 25 lakhs

Exit load charge = 2%

Therefore Exit load to be charged by PMS provider = 2% of 25 lakhs = 50,000

Apart from mentioned above charges some fees are charged on actual basis, like:Custody fee, Audit charges,Courier charges, Stamp duty and depository fee etc.



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