NISM Series XXI-A Formula Sheet
Ten formulas, what each one is for, and a worked example.
A PMS distributor has to explain returns and fees to clients, and Series XXI-A tests exactly that: how returns are measured, how fees are charged, and how a portfolio compares with its benchmark.
These ten formulas cover them, with a worked high-water-mark example.
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The 10 Formulas
1
Formula
Holding-period return
Expression
(Ending value − Beginning value + Income) ÷ Beginning value
Use it for
Return over a single period without cash flows.
2
Formula
Time-weighted return (TWRR)
Expression
(1 + R₁) × (1 + R₂) × … × (1 + Rₙ) − 1
Use it for
PMS performance reporting, removing the effect of client cash flows.
3
Formula
Annualised return
Expression
(1 + Cumulative return)^(1/years) − 1
Use it for
Reporting returns for periods over a year.
4
Formula
Fixed fee
Expression
Fee rate × Average portfolio value
Use it for
Management fee charged regardless of performance.
5
Formula
Performance fee (high-water mark)
Expression
Fee share × (Portfolio value − High-water mark), if positive
Use it for
Fee only on gains above the previous peak.
6
Formula
Hurdle-based performance fee
Expression
Fee share × (Return − Hurdle return) × Capital
Use it for
Performance fee only above an agreed minimum return.
7
Formula
Excess return over benchmark
Expression
Portfolio return − Benchmark return
Use it for
Comparing with the SEBI-mandated benchmark for the strategy.
8
Formula
Sharpe ratio
Expression
(Portfolio return − Risk-free rate) ÷ Standard deviation
Use it for
Risk-adjusted return for comparing strategies.
9
Formula
Net return to client
Expression
Gross return − Fees and expenses
Use it for
What the client actually earns.
10
Formula
Portfolio weight
Expression
Value of holding ÷ Total portfolio value
Use it for
Concentration checks against strategy limits.
| # | Formula | Expression | Use it for |
|---|---|---|---|
| 1 | Holding-period return | (Ending value − Beginning value + Income) ÷ Beginning value | Return over a single period without cash flows. |
| 2 | Time-weighted return (TWRR) | (1 + R₁) × (1 + R₂) × … × (1 + Rₙ) − 1 | PMS performance reporting, removing the effect of client cash flows. |
| 3 | Annualised return | (1 + Cumulative return)^(1/years) − 1 | Reporting returns for periods over a year. |
| 4 | Fixed fee | Fee rate × Average portfolio value | Management fee charged regardless of performance. |
| 5 | Performance fee (high-water mark) | Fee share × (Portfolio value − High-water mark), if positive | Fee only on gains above the previous peak. |
| 6 | Hurdle-based performance fee | Fee share × (Return − Hurdle return) × Capital | Performance fee only above an agreed minimum return. |
| 7 | Excess return over benchmark | Portfolio return − Benchmark return | Comparing with the SEBI-mandated benchmark for the strategy. |
| 8 | Sharpe ratio | (Portfolio return − Risk-free rate) ÷ Standard deviation | Risk-adjusted return for comparing strategies. |
| 9 | Net return to client | Gross return − Fees and expenses | What the client actually earns. |
| 10 | Portfolio weight | Value of holding ÷ Total portfolio value | Concentration checks against strategy limits. |
Worked Example: High-Water-Mark Fee
A client's portfolio peaked at ₹1.20 crore last year, its high-water mark. It is now ₹1.38 crore. The performance fee is 20% of gains above the high-water mark.
- 1
Gain above the high-water mark
1.38 − 1.20 = ₹0.18 crore.
- 2
Performance fee
20% × 0.18 crore = ₹3.6 lakh.
- 3
New high-water mark
The mark resets to the new peak, so the client never pays twice for the same gain.
Free account, this exam preselected.
TWRR for Managers, Not for Clients' Wealth
TWRR removes the effect of when the client added or withdrew money, so it judges the manager fairly. A client's own experience depends on cash-flow timing, which TWRR deliberately ignores.
FAQs
Can a PMS charge a performance fee on any gain?expand_more
SEBI requires performance fees to be charged on a high-water-mark basis, so only gains above the previous peak attract a fee.
Why is TWRR used for PMS reporting?expand_more
It isolates the portfolio manager's decisions from client deposits and withdrawals.
What is the minimum PMS investment?expand_more
SEBI sets it at ₹50 lakh per client.
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