The two shapes

Fees are commercial, not regulated, so they vary by house. Two structures dominate.

  • Flat fee only. Typically 2 to 2.5% of assets a year.
  • Flat plus profit share. A lower fixed fee, plus a cut of gains above a hurdle rate.

Run the numbers before you assume

Take ₹50 lakh over one year.

On a flat 2.5%, you pay ₹1,25,000. Good year or bad.

On 1.5% plus 15% above a 10% hurdle, at an 18% return your gain is ₹9,00,000. The hurdle absorbs the first ₹5,00,000. Of the remaining ₹4,00,000 the manager takes 15%, or ₹60,000. Add the ₹75,000 fixed fee and you pay ₹1,35,000.

The crossover sits around 16.7%. Below that the profit share is cheaper. Above it, the flat fee is.

So a profit share does not mean you only pay when things go well. It means you pay less in bad years and more in very good ones.

Three clauses to check before signing

  • The hurdle. What return must the manager clear before taking a share?
  • The high-water mark. Without one you can be charged twice for recovering the same loss.
  • Realised or notional. Is the profit share charged on gains actually booked, or on paper gains?

What sits on top

The headline fee is not the whole cost. Add GST on the fee, plus brokerage, custody and audit charges.

And add the cost nobody quotes: tax on churn. A PMS holds shares in your own name, so every sale the manager makes is your taxable disposal that year. A high-turnover manager hands you a tax bill annually even if you withdraw nothing.

The number to ask for

Portfolio turnover, alongside performance.

Two managers can report identical gross returns and leave you with materially different money once fees and churn tax are through. The second number tells you how much of the first you actually keep.