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PMS fees to be charged based on new rule - High Water Mark Principle

 

 

The Securities and Exchange Board of India (SEBI) has directed portfolio managers to charge fees on profit calculated on the basis of the high water mark principle.


"High water mark should be the highest value that the portfolio/account has reached. Value of the portfolio for computation of high watermark should be taken to be the value on the date when performance fees are charged," a SEBI circular issued on Tuesday stated.


This fees can be charged from clients only once in a quarter, and is payable only if there is an increase in portfolio value from the earlier determined high water mark, not if it declines below it.


"In case of interim contributions/ withdrawals by clients, performance fees may be charged after appropriately adjusting the high water mark on proportionate basis," the regulator added.


This method of fees computation is not applicable for advisory services. For new client agreements, the above norms will be applicable from November 1, while for existing clients, the revised norms will be effective January 1.
The regulator had in July 27 issued a consultative paper in this regard.


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