Unit ko samjho · NISM Series XXI-B
Operational Aspects of Portfolio Managers (Onboarding and Fees)
8 questions is unit mein
Sawaal aur jawaab English mein hain, kyunki NISM ka exam paper bhi English mein hota hai.
Is unit mein kya hai
- Which document should clearly set out the manager’s authority, client obligations and agreed fee terms?
- What is the main purpose of a high-water mark in a performance-fee arrangement?
- Before escalating an eligible unresolved securities-market complaint through SCORES, whom should an investor first approach for redressal?
- A hypothetical PMS agreement starts the year with ₹100 lakh. Its annual fixed management fee is 1% of that opening value, with no cash flows or other charges. What fixed fee is payable?
- The hypothetical account opens at ₹100 lakh, with a 6% annual hard hurdle and a prior high-water mark of ₹108 lakh. Performance fees apply only to wealth above both thresholds, after the fixed fee. What is the effective threshold?
- The hypothetical account opens at ₹100 lakh and ends at ₹115 lakh before fees, without cash flows. Charge a 1% opening-value fixed fee first, then a 10% performance fee on wealth above both a 6% opening-value hard hurdle and the ₹108 lakh high-water mark. What is the performance fee?
- The same hypothetical account opens at ₹100 lakh and ends at ₹115 lakh before fees, without cash flows. Deduct the agreed ₹1 lakh fixed fee and ₹0.60 lakh performance fee, with no other charges or taxes. What is the client’s net return?
- For the next year, the hypothetical agreement fixes the relevant high-water mark at ₹113.40 lakh. Wealth falls to ₹107 lakh and later recovers to ₹112 lakh after the fixed fee, with no cash flows. What performance fee is due if new highs are required?
Zaroori ideas
Practice bank se · 1
Which document should clearly set out the manager’s authority, client obligations and agreed fee terms?
The portfolio-management agreement records the agreed authority, obligations and fee terms. Investors should understand these terms before relying on the service. Remember: The agreement defines the specific management relationship.
Hint Look for the document governing the relationship between both parties. Common mistake: Treating a marketing presentation as a substitute for the agreed contract.
XXI-B-041Practice bank se · 2
What is the main purpose of a high-water mark in a performance-fee arrangement?
A high-water mark helps avoid charging a performance fee again merely for recovering previously rewarded gains. Its operation depends on the agreed and applicable fee framework. Remember: Recovery of a past loss is different from creating a new fee-eligible high.
Hint Consider how a loss followed by a recovery should affect repeat charging. Common mistake: Confusing a performance-fee reference level with capital protection.
XXI-B-042Practice bank se · 3
Before escalating an eligible unresolved securities-market complaint through SCORES, whom should an investor first approach for redressal?
The investor should first approach the concerned regulated entity, as SEBI’s SCORES guidance explains. An eligible unresolved grievance can then be escalated through the prescribed process. Remember: Keep evidence of the initial complaint and the entity’s response.
Hint Begin with the party that provided the service being disputed. Common mistake: Skipping the service provider and expecting an unrelated institution to resolve the matter.
XXI-B-043Practice bank se · 4
A hypothetical PMS agreement starts the year with ₹100 lakh. Its annual fixed management fee is 1% of that opening value, with no cash flows or other charges. What fixed fee is payable?
The fixed fee is ₹1 lakh because the agreement applies 1% to the ₹100 lakh opening value. Working: ₹100 lakh × 0.01 = ₹1 lakh. The rate is a case assumption, not a statutory limit. Remember: A fee percentage is meaningful only when its calculation base is known.
Hint Use the fee base specified in this hypothetical agreement. Common mistake: Applying a rate to closing wealth when the agreement specifies opening wealth.
XXI-B-044Practice bank se · 5
The hypothetical account opens at ₹100 lakh, with a 6% annual hard hurdle and a prior high-water mark of ₹108 lakh. Performance fees apply only to wealth above both thresholds, after the fixed fee. What is the effective threshold?
The effective threshold is ₹108 lakh because it is higher than the ₹106 lakh hurdle wealth. Hurdle wealth = ₹100 lakh × 1.06 = ₹106 lakh. The case requires the portfolio to clear both ₹106 lakh and ₹108 lakh. Remember: A hurdle rate and a high-water mark can constrain the same performance-fee calculation.
Hint Calculate the hurdle wealth and compare the two separate thresholds. Common mistake: Using the hurdle while forgetting that the high-water mark is higher.
XXI-B-045Practice bank se · 6
The hypothetical account opens at ₹100 lakh and ends at ₹115 lakh before fees, without cash flows. Charge a 1% opening-value fixed fee first, then a 10% performance fee on wealth above both a 6% opening-value hard hurdle and the ₹108 lakh high-water mark. What is the performance fee?
The performance fee is ₹0.60 lakh because only ₹6 lakh remains above the controlling threshold. Fixed fee = 1% × ₹100 lakh = ₹1 lakh. Wealth after the fixed fee = ₹115 lakh − ₹1 lakh = ₹114 lakh. The higher threshold is max(₹106 lakh, ₹108 lakh) = ₹108 lakh. Eligible gain = ₹114 lakh − ₹108 lakh = ₹6 lakh. Performance fee = 10% × ₹6 lakh = ₹0.60 lakh. Remember: Fee order and the higher applicable threshold can materially change performance fees.
Hint Apply the fee order, then identify which threshold controls. Common mistake: Charging on total gains rather than gains above the relevant thresholds.
XXI-B-046Practice bank se · 7
The same hypothetical account opens at ₹100 lakh and ends at ₹115 lakh before fees, without cash flows. Deduct the agreed ₹1 lakh fixed fee and ₹0.60 lakh performance fee, with no other charges or taxes. What is the client’s net return?
The client’s net return is 13.40% because closing wealth after fees is ₹113.40 lakh. Closing wealth = ₹115 − ₹1 − ₹0.60 = ₹113.40 lakh. Net gain = ₹13.40 lakh. Return = ₹13.40 lakh ÷ ₹100 lakh × 100 = 13.40%. Remember: Client return is measured after the fees and costs specified in the calculation.
Hint Calculate the amount remaining for the client before measuring the return. Common mistake: Describing a gross portfolio gain as the client’s net result.
XXI-B-047Practice bank se · 8
For the next year, the hypothetical agreement fixes the relevant high-water mark at ₹113.40 lakh. Wealth falls to ₹107 lakh and later recovers to ₹112 lakh after the fixed fee, with no cash flows. What performance fee is due if new highs are required?
No performance fee is due because ₹112 lakh remains below the ₹113.40 lakh high-water mark. A recovery from the recent low is not a new eligible high. Remember: A rebound can be profitable without creating performance-fee eligibility.
Hint Compare recovered wealth with the contractual reference high, not only the recent low. Common mistake: Restarting the performance-fee reference from a temporary portfolio low.
XXI-B-048