Part of the NISM-Series-XXI-A Exam Prep Kit

Visual Guide: three pictures worth remembering

The PMS-specific mechanics — service models, fee calculation, and exit charges — are easier to hold in your head as pictures than as paragraphs.

1. Discretionary vs. non-discretionary PMS

Who makes the call on each transaction is the single defining difference between the two service models.

Discretionary PMS Manager decides AND executes independently, within the client's agreed objectives No per-transaction approval needed from the client Non-discretionary PMS Manager advises; client approves EACH transaction before execution Client retains direct transaction-level control Both still owe the client a fiduciary duty — the difference is purely about who pulls the trigger.
Why it matters: scenario questions describing a manager acting without client sign-off, or a client approving every trade, are testing whether you can label the model correctly.

2. The High Water Mark mechanism

A performance fee is only ever charged on NEW gains above the portfolio's highest-ever value — never on simply recovering a prior loss.

Value HWM set (Yr 1) Yr 2: below HWM — no performance fee Yr 3: new HWM — fee charged ONLY on the gain above the old HWM previous HWM line
Why it matters: worked examples ("portfolio starts at X, falls, then exceeds its old peak by Y — what performance fee applies?") are a classic question type for this chapter.

3. Exit load schedule

No lock-in is permitted in PMS, but a scaled exit load can apply instead — shrinking to zero after three years.

Year 1 3% max exit load Year 2 2% max exit load Year 3 1% max exit load After Yr 3 Nil No lock-in exists instead — the exit load is the only friction on early withdrawal, and it tapers to zero.
Why it matters: the exact percentages (3% / 2% / 1% / nil) are directly testable, as is the fact that NO lock-in is permitted alongside this schedule.