ANP Plan, a hedge fund currently has assets of 20 crore. CA. X, the manager of fund charges fee of 0.10% of portfolio asset. In addition to it he…
CA Final · Advanced Financial Management · MTP · January 2026
ANP Plan, a hedge fund currently has assets of 20 crore. CA. X, the manager of fund charges fee of 0.10% of portfolio asset. In addition to it he charges incentive fee of 2%. The incentive will be linked to gross return each year in excess of the portfolio maximum value since the inception of fund. The maximum value the fund achieved so far since inception of fund about one and half year ago was 21 crores. You are required to compute the fee payable to CA. X, if return on the fund this year turns out to be: (i) 29%, (ii) 4.5%, (iii) -1.8%
Suggested Answer and Working Notes:
(i) If return is 29% Fixed fee (A) 0.10% of 20crore 2,00,000 New Fund Value (1.29 x 20 crore) 25.80 crore Excess Value of best achieved (25.8 crore – 21.0 crore) 4.80 crore Incentive Fee (2% of 4.80 crores) (B) 9,60,000 Total Fee (A)+(B) 11,60,000 (ii) If return is 4.5% Fixed (A) 0.10% of 20crore 2,00,000 New Fund Value (1.045 x 20 crore) 20.90 crore Excess Value of best achieved (20.90 crore -21.00 crore) (0.10 crore) Incentive Fee (as does not exceed best achieved) (B) Nil Total Fee (A)+(B) 2,00,000 (iii) If return is (-1.8%) No incentive only fixed fee of 2,00,000 will be paid.
Topics: Portfolio Management
Related Questions in this Topic
- Consider the following information on two stocks, X and Y: Year Return on X (%) Return on Y (%) 2024-25 10 ...
- Suppose a Large-cap Mutual Fund is benchmarked to a particular Index. Index and the same Mutual Fund realised the follow...
- Mr. A, an investor is contemplating to invest a large lump sum investment and shortlisted two equity managers X and Y, o...
- Mr. Arvind Mehta, a retired corporate executive, has accumulated a diversified investment portfolio consisting of equity...
- Explain the areas in which the role of the CFO has expanded beyond the traditional role in the post-pandemic era.