PMS Fees and Charges Explained: Fixed, Performance and Hybrid

A Portfolio Management Service (PMS) has no single expense ratio. PMS fees and charges come as separate items: a fixed management fee, a performance fee on gains above the high-water mark and any agreed hurdle, or a hybrid of the two, plus 18% GST on those fees, brokerage at actual cost, operating expenses that SEBI caps at 0.50% a year of your average daily assets, and an exit load only if you leave within three years. SEBI bars any upfront fee.

Below is each charge, the SEBI rule behind it and how to read the fee pages of a PMS agreement, under the rules in force in October 2026: the SEBI (Portfolio Managers) Regulations, 2020 and SEBI's Master Circular for Portfolio Managers dated 16 July 2025. If you are new to the product, start with what a PMS is and how it works.

PMS fees and charges at a glance

• Management fee: a fixed percentage of your assets each year.
• Performance fee: a share of gains above the high-water mark, and above a hurdle where the agreement sets one.
• GST: 18% on the management and performance fees.
• Brokerage: charged at actuals on every trade.
• Operating expenses: custody, fund accounting, depository and similar costs, capped at 0.50% a year of your average daily assets under management (AUM).
• Exit load: at most 3%, 2% and 1% of the amount withdrawn in years one, two and three, and nil after that.

Under Regulation 22(11) of the 2020 regulations, the agreed fee may be "a fixed fee or a return based fee or a combination of both", and the manager may not promise any return.

PMS fixed fee: the management fee

A fixed fee is a set percentage of the portfolio's value, charged whether markets rise or fall. SEBI requires every fee and charge to be levied on the actual amount of your AUM, so the rupee amount moves with the portfolio. Your agreement states how often you are billed, whether the fee is collected in advance and whether it is deducted from the portfolio.

Take ₹50 lakh at a 1.5% annual fee. If the value stays near ₹50 lakh, the fee is about ₹75,000 for the year; GST at 18% adds ₹13,500, so you pay ₹88,500, or 1.77% of the portfolio. In market practice, fixed fees commonly run from about 0.25% to 2.5% a year.

PMS performance fee: hurdle rate and high-water mark

A performance fee, also called profit sharing, gives the manager a percentage of the gain. Two clauses decide how much of the gain counts.

Hurdle rate

The hurdle is the return the portfolio must clear before any profit share is due. Its level is set in your agreement, not by SEBI. SEBI's own sample fee annexure assumes a 10% hurdle and a 20% share of profits above it, and market practice commonly runs from 10% to 20% of gains above hurdles of 8% to 10%.

Read the clause closely. Some agreements charge the share only on the return above the hurdle; others carry a catch-up clause that lets the manager share in the gain below the hurdle once it is crossed. Two offers with the same headline percentage can cost very different amounts.

High-water mark

SEBI requires performance fees to follow the high-water mark principle over the life of your investment. The high-water mark is the highest value your portfolio has reached, taken on the dates performance fees are charged, and the manager may charge a performance fee only on the increase above that earlier peak. You do not pay twice for the same gain. The master circular adds three rules:

• Performance fees cannot be charged more often than once a quarter.
• The principle applies to both discretionary and non-discretionary PMS.
• If you add or withdraw money midway, the high-water mark is adjusted proportionately before any fee is charged.

Worked example: hurdle and high-water mark together

Assume ₹50 lakh, a 20% share of gains above a 10% yearly hurdle, fees worked out once a year, and the hurdle measured from the high-water mark, as in SEBI's FAQ illustration. To keep the arithmetic simple, values are taken before fees, as in SEBI's own high-water mark example.

In year 1 the value is ₹5 lakh above the hurdle level, so the fee is ₹1 lakh plus ₹18,000 GST. In year 2 the portfolio is below its peak, so no performance fee is due. In year 3 it rises ₹10 lakh but ends only ₹5 lakh, or 8.3%, above the old ₹60 lakh peak, short of the 10% hurdle, so the fee is nil and ₹65 lakh becomes the new high-water mark. In year 4 the value is ₹6.5 lakh above the ₹71.5 lakh hurdle level, so the fee is ₹1.3 lakh plus ₹23,400 GST.

SEBI's own illustration, which has no hurdle, follows the same path: in year 3 the fee applies only to the ₹5 lakh above the ₹60 lakh peak, not to the full ₹10 lakh rise from ₹55 lakh.

PMS hybrid fee: fixed fee plus profit share

A hybrid charges a lower fixed fee plus a performance share; market practice is a fixed part of about 1% to 2% with a profit share on top. In the example above, a hybrid client would pay the fixed part in all four years and the profit share only in years 1 and 4.

A fixed fee is charged at the same rate in good and bad years, though the rupee amount moves with the portfolio's value. A performance fee costs nothing in flat or falling years but takes a share of strong ones. A hybrid sits between the two. To compare options, SEBI requires every manager to give clients a fee calculation tool that shows its fee options over several years and applies the high-water mark; for clients onboarded from 1 October 2024, the link must be shared in advance.

GST on PMS fees

GST at 18% applies to the management fee and the performance fee, charged as 9% CGST plus 9% SGST, or as 18% IGST across states. Brokerage and custody services carry GST too. A quoted 2% management fee therefore costs 2.36% of the portfolio once GST is added. Individuals investing personal money generally cannot claim this GST back as input tax credit. How fees are treated for income tax is a separate question, covered in how PMS gains are taxed.

Brokerage, custody, audit and other operating costs

Brokerage is charged to you at actual cost, so a strategy that trades often will cost more than a low-turnover one with the same management fee. Everything else the manager passes on apart from its fee and brokerage, such as custody, fund accounting, depository and audit charges, is an operating expense, and SEBI caps these at 0.50% a year of your average daily AUM. On ₹50 lakh, that is at most ₹25,000 a year.

SEBI also limits business with group firms. Broking, demat, custody and similar services bought from the manager itself or an associate are capped at 20% of the value of each service per associate in a financial year, at rates no higher than unrelated providers charge.

PMS exit load: SEBI's caps

A portfolio manager cannot impose a lock-in, but it may charge an exit load when you withdraw part or all of your portfolio early, within SEBI's limits: up to 3% of the amount redeemed in the first year, 2% in the second, 1% in the third and nothing after three years.

These are ceilings, so check the actual schedule in your agreement. Withdrawing ₹20 lakh in month eight could cost up to ₹60,000. Large value accredited investors, who agree to invest at least ₹10 crore, negotiate exit terms with the manager instead.

No upfront fee and no unlisted charges

Under Regulation 22(11) of the 2020 regulations, in force since January 2020 and restated in SEBI's circular of 13 February 2020, a portfolio manager cannot charge an upfront fee, directly or indirectly. SEBI also bars any fee or charge that is not listed in the fee annexure of your agreement.

The rules themselves are changing. SEBI notified the SEBI (Portfolio Managers) Regulations, 2026 in October 2026, to replace the 2020 regulations from 1 April 2027; they keep the choice of fixed, return-based or combined fees and the ban on upfront fees. SEBI's board has also approved leaving statutory levies out of the 0.50% operating expense cap, a change whose start date SEBI has yet to announce; until then the cap works as described above.

How fees are disclosed: disclosure document and fee illustration

Before you sign, the manager must give you its disclosure document, which sets out the range of fees charged under each head and the nature of expenses such as custody fees and brokerage. The agreement must carry a separate annexure listing every fee and charge, with an illustration on a sample ₹50 lakh portfolio over one year in three scenarios: the value rises 20%, falls 20% or stays flat.

SEBI's model annexure uses round sample figures (2% brokerage and similar charges, a 2% management fee and 20% of profits above a 10% hurdle, before GST):

• Up 20%: charges of ₹3 lakh leave ₹57 lakh, a 14% gain.
• Down 20%: charges of ₹2 lakh leave ₹38 lakh, a 24% loss.
• Flat: charges of ₹2 lakh leave ₹48 lakh, a 4% loss.

Since 1 October 2024, where a performance fee applies, new clients also get one-year and multi-year illustrations that apply the high-water mark, in standard formats set by APMI with SEBI. You sign the fee annexure separately with a note, handwritten or typed, that you have understood it, and you receive a Most Important Terms and Conditions document. Each quarterly report carries an annexure showing how your fee was calculated, and any performance the manager reports must be net of all fees and expenses.

PMS direct vs distributor: onboarding and how distributors are paid

SEBI requires every portfolio manager to offer direct onboarding without a distributor, to disclose that option prominently in its disclosure document, marketing material and website, and, at the time of onboarding a client directly, to levy no charges other than statutory ones. The agreed management and performance fees still apply to direct clients.

Through a distributor, three rules apply. The distributor must be registered with APMI. The manager may pay the distributor only as a trail commission, and only out of the fees the manager itself receives, so the commission is not billed to you as an extra charge. And before you sign, you must be told what the distributor will earn for the strategy you choose; your quarterly report also shows the commission paid on your account. The distributor code of conduct adds that commission must never be the reason a PMS is put before you.

PMS has no separate Direct and Regular plans of the kind mutual funds have, so ask the manager whether it quotes the same fee to direct clients and compare the annexures. Before signing, also check the fee base and billing frequency, the hurdle and any catch-up, how often the performance fee is charged, expected brokerage and the exit load schedule. Our checklist for evaluating a PMS covers the wider questions.

How Sanriya helps with PMS fees

Sanriya Finvest Pvt. Ltd., Pune, is an APMI-registered PMS distributor (APRN01056) and an AMFI-registered mutual fund distributor (ARN-193359). We explain the fee annexure, the fee options and the exit load schedule of the strategies you are considering, handle the onboarding paperwork and service the account after you invest. Our trail commission is paid by the portfolio manager out of its own fee; we do not charge you a separate fee. We distribute, and the decision stays with you. See our PMS page or contact us to go through a fee annexure together.