PMS Fee Structures — Fixed, Variable, and Hurdle Rate

A typical Discretionary PMS in India today charges between 1.5% and 2.5% per annum as a fixed management fee, calculated as a percentage of average daily AUM. For an investor with ₹50 lakh allocated, this works out to roughly ₹75,000 to ₹1.25 lakh per year, deducted from the demat account quarterly or monthly. On top of this, many PMS schemes offer a performance-fee option — typically structured as 10-20% of returns above a hurdle rate of 8-12% per annum, with a high-water mark provision to ensure the Manager is not paid twice for the same gains. For example, a PMS charging 2% fixed plus 15% performance over 10% hurdle: in a year where the portfolio returns 18%, the Manager keeps the 2% management fee plus 15% × (18% − 10%) = 1.2% performance fee, totalling 3.2% in fees. In a year where the portfolio returns only 6%, the Manager keeps the 2% management fee but no performance fee. The high-water mark means that if the portfolio loses 10% in year 1, the Manager must first earn back that 10% in year 2 before any new performance fee can accrue. SEBI requires every PMS to offer at least one option where the investor can choose pure fixed-fee with no performance component — the investor decides whether to opt for the fixed-only or the fixed-plus-performance structure. Beyond management and performance fees, the investor also pays brokerage on every transaction the Manager executes (typically 5-15 bps per trade), custodian fees (₹5,000-15,000 per year), and audit/compliance fees. These are pass-through and are paid out of the demat account directly. Total annual cost of a PMS, including all fees and expenses, typically ranges from 2.5% to 4.5% per annum, materially higher than a mutual fund's 0.5%-2.0% TER.