PMS fees and charges
SEBI does not cap the fee rate; it bans upfront fees and caps operating expenses at 0.50% a year.
A PMS client pays three kinds of cost: the portfolio manager's fee, brokerage on trades, and other operating expenses such as custody and fund accounting. SEBI does not cap the fee rate a PM may charge. It regulates how fees are structured, bans upfront fees, caps the other expenses, and requires every charge to be shown to the client in advance.
Clients compare PMS houses on fees more than on anything else they can verify, so this is where a distributor's explanation has to be exact.
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The three fee models
Regulation 22(11): the PM charges an agreed fee without guaranteeing or assuring any return, and the fee may be fixed, return based, or a combination.
Fixed
How it works
A percentage of assets under management, regardless of performance
Example on a ₹75 lakh account
2% a year on average AUM of ₹75 lakh: ₹1.5 lakh
Return based (performance)
How it works
A share of profits, usually above a hurdle, always above the high water mark
Example on a ₹75 lakh account
20% of profit above a 10% hurdle
Hybrid
How it works
A lower fixed fee plus a performance share
Example on a ₹75 lakh account
1% fixed plus 15% of profit above the hurdle
| Model | How it works | Example on a ₹75 lakh account |
|---|---|---|
| Fixed | A percentage of assets under management, regardless of performance | 2% a year on average AUM of ₹75 lakh: ₹1.5 lakh |
| Return based (performance) | A share of profits, usually above a hurdle, always above the high water mark | 20% of profit above a 10% hurdle |
| Hybrid | A lower fixed fee plus a performance share | 1% fixed plus 15% of profit above the hurdle |
The limits SEBI sets
- check_circleNo upfront fee, directly or indirectly (Reg 22(11) proviso; Master Circular 6.1.3.1). This has applied since SEBI's February 13, 2020 circular.
- check_circleBrokerage is charged at actuals as an expense (6.1.3.2).
- check_circleOperating expenses other than brokerage, over and above the management fee, cannot exceed 0.50% a year of the client's average daily AUM (6.1.3.3).
- check_circleBroking, demat, custody and similar transactions through the PM itself or its associates are capped at 20% by value per associate per service in a financial year, at rates no higher than non-associates charge (6.1.3.4).
- check_circleAll fees are levied on the actual AUM of the client (6.1.3.7).
- check_circlePerformance fees follow the high water mark principle (6.1.3.6).
- check_circleNo charge may be levied that is not in the fee annexure to the agreement (4.3.6).
- check_circleThese fee provisions do not apply to co-investment services (6.1.3.5).
Worked example: the operating expense cap
- 1
The account
A client's discretionary account averages ₹80 lakh of daily AUM over the year.
- 2
The cap
0.50% of ₹80 lakh is ₹40,000. Custody, fund accounting, audit and similar operating expenses together cannot exceed ₹40,000 for the year.
- 3
What sits outside it
Brokerage is excluded from the cap and charged at actuals. The management fee and any performance fee are also separate; the cap covers expenses over and above the fee.
Free account, this exam preselected.
Transparency tools the client gets
- Fee annexure
- Every charge illustrated on a ₹50 lakh sample portfolio for gains of 20%, losses of 20% and no change, signed separately by the client.
- Fee calculation tool
- A tool showing fee options with multi-year calculations and the high water mark; its link must reach every client onboarded on or after October 1, 2024 in advance (6.1.3A).
- Fee calculation in reports
- Since October 1, 2024, the periodic client report carries an annexure detailing the fee calculation in APMI's format (5.5.1.4).
- Fee range in the DD
- The Disclosure Document shows the range of fees charged under each head (Reg 22(12)).
Approved, not in force: the 2026 Regulations
On September 24, 2026 SEBI's Board approved new SEBI (Portfolio Managers) Regulations, 2026. Among the changes, statutory levies would be excluded from the 0.50% operating expense cap, and a new mutual-fund-only route (PRIM) would cap its fixed management fee at 1% of AUM. Until the new Regulations are notified, the limits above apply.
Where the distributor's commission fits
A distributor's commission is not a separate charge to the client. The PM pays it on a trail basis only, out of the fees it receives, and the prospective client is told the amount beforehand.
How XXI-A tests this
Numeric questions ask for the operating expense cap (0.50% of average daily AUM, excluding brokerage) and the associate cap (20%). Scenario questions describe a one-time account opening fee of 0.50% and ask whether it is allowed; it is not, because it is an upfront fee. Another describes a client asking if SEBI caps the performance fee percentage; SEBI does not, it fixes the basis (high water mark) instead. The common slip is including brokerage inside the 0.50% cap.
FAQs
What fees do PMS charge?expand_more
A management fee that is fixed, return based or a mix of both, plus brokerage at actuals and operating expenses capped at 0.50% a year of average daily AUM. Upfront fees are not allowed.
Is there a maximum PMS fee set by SEBI?expand_more
SEBI does not cap the management or performance fee rate. It caps operating expenses other than brokerage at 0.50% a year and requires performance fees on a high water mark basis.
Can a PMS charge an entry load or upfront fee?expand_more
No. The regulations prohibit upfront fees charged directly or indirectly.
Is brokerage included in the PMS expense cap?expand_more
No. Brokerage is charged at actuals and sits outside the 0.50% operating expense cap.