PMS Fee Structure in India: Fixed, Performance & Hybrid Models

How Portfolio Management Services (PMS) Fee Structure Works in India

Understanding how PMS providers charge fees is essential for making an informed investment decision. Broadly, PMS fee models fall into three categories: Fixed, Performance-based, and Hybrid. Each comes with its own advantages, trade-offs, and long-term impact on investor returns.

1. Fixed Fee Model in PMS Fee Structure

What It Is

A fixed percentage charged annually on your portfolio’s average assets under management (AUM), regardless of performance.

Typical Range

Between 1.5 % to 2.5% per annum, usually billed quarterly or monthly.

Ideal For

Investors who prefer predictable, stable costs and want to avoid variable charges linked to returns.

Pros & Cons

Pros: Simple and transparent
Cons: No alignment between fees and performance — you pay even if the portfolio underperforms

Example 1: Fixed-Only Fee Model in PMS Fee Structure

Scenario	In Case of Profit	No Profit / No Loss	In Case of Loss
Investment amount	₹1,00,00,000	₹1,00,00,000	₹1,00,00,000
Return on portfolio	+15%	0%	–10%
Profit / Loss	₹15,00,000	₹0	–₹10,00,000
Portfolio value at year-end	₹1,15,00,000	₹1,00,00,000	₹90,00,000
Average portfolio value	₹1,07,50,000	₹1,00,00,000	₹95,00,000
Fixed Fee (1.5%)	₹1,61,250	₹1,50,000	₹1,42,500
Net Portfolio Value (post fee)	₹1,13,38,750	₹98,50,000	₹88,57,500
Net Investor Return	13.4%	–1.5%	–11.4%

Even in a down year, a fixed fee is charged—good for predictable cost, but may hurt in negative years.

2. Performance-Based Fee Model in PMS Fee Structure

What It Is

Charges are applied only when the PMS delivers returns above a pre-agreed hurdle rate (e.g., 8–12% p.a.).

Fee Structure

You pay a share of the profits exceeding the hurdle, typically 10–20%, calculated using the high-water mark principle (i.e., no double-charging on already-earned returns).

Ideal For

Investors who want to pay only when they gain, rewarding the manager for superior performance.

Pros & Cons

Pros: Aligns the interests of the manager and investor
Cons: Can become expensive in high-return years; fee calculations are more complex

Example 2: Performance-Only Fee Model in PMS Fee Structure

(With Hurdle Rate: 10%, Performance Fee: 20% of profits above hurdle)

Scenario	In Case of Profit	No Profit / No Loss	In Case of Loss
Investment amount	₹75,00,000	₹75,00,000	₹75,00,000
Return on portfolio	+18%	0%	–12%
Profit / Loss	₹13,50,000	₹0	–₹9,00,000
Hurdle (10%)	₹7,50,000	₹7,50,000	₹7,50,000
Profit above hurdle	₹6,00,000	NA	NA
Performance Fee (20% of excess)	₹1,20,000	₹0	₹0
Net Value after fee	₹87,30,000	₹75,00,000	₹66,00,000
Net Return to Investor	16.4%	0.0%	–12.0%

You only pay when your portfolio performs—but the fee can be high in great years.

3. Hybrid Fee Model in PMS Fee Structure

What It Is

A combination of fixed fee (lower than pure fixed model) and performance fee above a hurdle rate.

Typical Breakdown

For example: 1% fixed fee + 15% of profits above 10% annual return

Ideal For

Investors are looking for a balance of cost stability and performance alignment.

Pros & Cons

Pros: Diversified fee model reduces risk
Cons: Could be costlier than fixed-only in flat markets

Example 3: Hybrid Fee Model in PMS Fee Structure

(Fixed Fee: 1%, Performance Fee: 15%, Hurdle: 12%)

Scenario	In Case of Profit	No Profit / No Loss	In Case of Loss
Investment amount	₹2,00,00,000	₹2,00,00,000	₹2,00,00,000
Return on portfolio	+20%	0%	–15%
Portfolio value at year-end	₹2,40,00,000	₹2,00,00,000	₹1,70,00,000
Average portfolio value	₹2,20,00,000	₹2,00,00,000	₹1,85,00,000
Fixed Fee (1%)	₹2,20,000	₹2,00,000	₹1,85,000
Hurdle (12% of ₹2 Cr)	₹24,00,000	₹24,00,000	₹24,00,000
Profit above hurdle	₹16,00,000	NA	NA
Performance Fee (15% of excess)	₹2,40,000	₹0	₹0
Total Fee Paid	₹4,60,000	₹2,00,000	₹1,85,000
Net Value After Fees	₹2,35,40,000	₹1,98,00,000	₹1,68,15,000
Net Return to Investor	17.7%	–1.0%	–15.9%

Hybrid offers a middle path — lower fixed fee than standalone, while also rewarding the manager in strong years.

4. Other Charges in PMS Fee Structure

Entry Load

No longer permitted by SEBI.

Exit Load

Charged for early redemption (usually within 1–3 years), typically 1–3%.

Operating Expenses

Includes audit, custodian, demat charges — often capped to maintain transparency.

Brokerage & Transaction Fees

Billed based on actual trading activity, typically 0.1–0.5% per trade.

GST

18% Goods & Services Tax is applied on both fixed and performance fees.

5. Key PMS Fee Structure Terms to Understand

• Hurdle Rate: The minimum annual return the PMS must earn before it can charge performance fees.
• High-Water Mark: Ensures performance fees are not charged twice on the same gains.
• Catch-Up: A clause that allows the PMS to earn full performance fees once the hurdle is met.

Choosing the Right Model for You

Investor Goal	Best Fee Model	Why It Works
Cost Predictability	Fixed Fee	Stable fees regardless of returns
Pay-Per-Performance	Performance-Only	Charges apply only on excess profits
Balanced Cost & Incentives	Hybrid	Mix of certainty and upside sharing

At PMS AIF WORLD, we help investors make informed and confident decisions by offering transparent, data-backed guidance on Portfolio Management Services (PMS) and Alternative Investment Funds (AIFs). Our approach goes beyond product selection—we deeply evaluate each strategy’s fee structure, consistency, risk-adjusted returns, and alignment with investor goals. Whether you’re weighing a fixed fee versus a performance-linked model or assessing long-term cost impact, we provide unbiased comparisons and personalized recommendations to ensure your capital is managed efficiently. With access to India’s top-performing managers and proprietary analytics, PMS AIF WORLD simplifies complexity—so you can invest wisely.