24 · Educational Portal

Client & partner education

Plain-language explanations of the terms that come up most often with PMS and AIFs — so partners and clients can speak the same language on structure, fees and returns.

PMS — The Basics

What it isPortfolio Management Service (PMS)A professionally managed portfolio of individual stocks (or bonds) built for one investor. Unlike a mutual fund, the securities are held in your own demat account — you directly own each share. SEBI sets a ₹50 lakh minimum.

TypeDiscretionary PMSThe manager makes all buy/sell decisions for you, within the agreed mandate. Most PMS money sits here. You delegate the driving; they steer.

TypeNon-Discretionary PMSThe manager recommends trades, but you approve each one before it's executed. More control for the investor, more involvement required.

TypeAdvisory PMSThe manager only advises; you execute the trades yourself in your own account. Advice without the execution.

OwnershipDemat-held / Pass-throughYou hold the actual shares, not units of a pooled fund. You see every stock, get the dividends directly, and the tax is on your individual gains.

Return measureTWRR (Time-Weighted Return)The SEBI-mandated way to report PMS performance. It strips out the timing of your deposits/withdrawals, so you judge the manager's skill, not your cash-flow luck.

AIF — The Basics

What it isAlternative Investment Fund (AIF)A privately pooled, SEBI-registered fund for sophisticated investors that invests beyond plain stocks/bonds — private equity, private credit, real estate, hedge-style strategies. Minimum investment ₹1 crore.

CategoryCategory I AIFFunds in areas the government wants to encourage — venture capital, start-ups, SME, infrastructure, social impact. No leverage.

CategoryCategory II AIFThe largest bucket — private equity and private credit funds, real estate, pre-IPO. Can't borrow except for day-to-day needs. Most of Centricity's AIF shelf sits here.

CategoryCategory III AIFHedge-fund-style strategies that can use leverage and derivatives — long-short, arbitrage, listed-equity funds. Higher risk, more complex.

CommitmentCommitment & Drawdown (Capital Call)You commit a total amount (say ₹1 cr), but the fund only draws it down in tranches as it finds deals. A "capital call" is the manager asking for the next instalment.

CommitmentDrawn vs Dry PowderDrawn / deployed is the money actually invested; dry powder is committed-but-undrawn capital still waiting to be called. Keep it liquid until called.

StructureClose-ended vs Open-endedClose-ended funds lock your money for a fixed life (common in PE/credit); open-ended funds let you subscribe and redeem periodically (common in Cat III).

StructureLock-in / TenureThe period your capital stays committed. PE/VC funds often run 7–10 years; you earn the illiquidity by staying the course.

TermVintageThe year a fund starts deploying. Two funds with the same strategy but different vintages can perform very differently depending on the market cycle they invest into.

TermGreenshoeAn option for the fund to raise extra capital above its target size if demand is strong (e.g., "₹1,500 cr + ₹500 cr greenshoe").

Fees, Returns & Common Terms

FeeFixed (Management) FeeA flat annual charge as a % of the money managed (e.g., 2% p.a.), payable whether or not the fund makes money.

FeePerformance Fee / CarryA share of the profits the manager keeps (often ~20%) — called "carry" (carried interest) in AIFs. Aligns the manager with the investor: they earn more only if you do.

FeeHurdle RateThe minimum return the fund must clear before any performance fee kicks in (e.g., 10%). Below the hurdle, the manager earns only the fixed fee.

FeeHigh-Water MarkPerformance fee is charged only on gains above the portfolio's previous peak. If it falls and recovers, you aren't charged twice for the same profit.

FeeCatch-upA clause that lets the manager "catch up" to its full profit share once the hurdle is crossed. "Full catch-up" means after the hurdle, the next profits go largely to the manager until they reach their agreed %.

FeeExit LoadA charge for redeeming early (e.g., 1% within 1 year). It discourages short-term exits and protects remaining investors.

Who's whoGP & LPIn an AIF, the GP (General Partner) is the manager who runs the fund and earns the carry; the LPs (Limited Partners) are the investors who provide the capital.

Return measureIRR / XIRRThe annualised return that accounts for when each rupee goes in and comes out — the right yardstick for drawdown-based funds where cash flows are uneven.

Return measureMOICMultiple on Invested Capital — simply how many times your money grew. 2.0× means you doubled it (before fees/tax); it ignores time, so pair it with IRR.

ConceptJ-CurveThe typical shape of a PE/credit fund's returns — negative early (fees paid, investments not yet matured), then curving up as deals are exited. Patience is built into the design.

ConceptBenchmarkThe index a strategy is measured against (e.g., Nifty 500 TRI). "Alpha" is the return earned above the benchmark — the value the manager actually added.

ConceptConcentration & ChurnConcentration is how few stocks a portfolio holds (fewer = higher-conviction, higher-risk); churn/turnover is how often it trades (higher = more costs and tax).

Definitions are simplified for education and are not investment advice. Specific fund terms (minimums, fees, hurdles, lock-ins) vary — always refer to each fund's offer document.