Every quarter, your Portfolio Management Service sends you a performance disclosure. It arrives as a PDF, sometimes a few pages, sometimes an elaborate factsheet with charts, sector allocations, and a letter from the fund manager. Most investors scan the headline return, compare it loosely with the Nifty, and move on.
That is an expensive habit.
SEBI mandates that PMS disclosures report returns net of all fees using standardised methodologies. The framework exists so you can compare strategies on a like-for-like basis and hold your manager accountable. But a document can be technically compliant while still presenting numbers in a sequence designed to flatter the strategy. The numbers that matter most are rarely the ones given the most space. This guide explains what each key section is actually telling you.
The most important technical concept in any PMS disclosure is the difference between Time Weighted Rate of Return (TWRR) and XIRR.
SEBI requires PMS managers to report performance using TWRR. This methodology strips out the distorting effect of cash flows, namely the timing of your deposits and withdrawals and measures only the fund manager’s investment decisions. It is the right metric for comparing strategies and benchmarks.
XIRR measures your actual personal return: when your money entered the portfolio, how long it was deployed, and when you redeemed. Two investors in the same strategy, entering at different points, will have different XIRRs even though their TWRR is identical.
The distinction is simple: TWRR tells you how good the strategy is. XIRR tells you how well it worked for you. A meaningful gap between the two usually reflects your entry timing relative to a market drawdown, not a flaw in the manager’s investment process.
Every PMS disclosure presents a benchmark return alongside the portfolio’s return. This row answers the only question that matters in professional money management: did the manager beat the market?
You are paying a management fee of 2% to 2.5% annually, plus a performance fee above a hurdle rate. These fees are only justified by consistent alpha. If your PMS returned 18% while the Nifty 500 returned 22%, you paid a premium to underperform a passive index fund.
Two things to verify here. First, ensure the benchmark matches the strategy a mid-cap-focused mandate strategy benchmarked against the Nifty 50 produces a meaningless misleading comparison. Second, look across multiple time periods. A strategy that beat its benchmark in three of the last five years, including during a correction, is worth considerably more than one that outperformed only in a bull run.
Point-to-point returns are easily shaped by the choice of start and end date. A manager who had a strong 2022 and a difficult 2024 can present a flattering 3-year number by anchoring the period to a favourable month. Rolling returns eliminate this entirely by calculating performance across every possible window of a given length within the strategy’s history.
A robust strategy will show rolling 3-year returns that beat the benchmark in a clear majority of measured periods. Strong point-to-point performance that does not hold up on a rolling basis usually means the returns were concentrated in one market phase and may not be repeatable.
Performance disclosures report returns net of fees but understanding the fee structure helps you interpret those returns more precisely.
Most PMS strategies charge a fixed management fee plus a performance fee above a defined hurdle, calculated on a high-water mark basis. The high-water mark means the manager earns no performance fee on recoveries from losses. If your portfolio drops from ₹1 crore to ₹90 lakh, the fee clock only restarts once it surpasses ₹1 crore again.
What to verify in this section:
These details determine how much of the gross return you actually retain. A strategy reporting 22% gross with a 15% profit-share may net out at considerably less than one delivering 18% on a simple fixed-fee basis.
At Carnelian Asset Management, we believe transparency is not a feature, it is a fiduciary responsibility. Our PMS disclosures are designed to help investors understand not just what their portfolio earned, but how those returns were generated, the risks taken to achieve them, and how they compare against relevant benchmarks.
Whether you are evaluating our PMS strategies for the first time or reviewing an existing allocation, we encourage the kind of rigorous reading this article describes. It is the only way to hold any manager, including us to the standard your capital deserves. Speak with our team to learn more.
1. Are PMS returns reported before or after fees?
SEBI mandates that all PMS performance disclosures report returns net of fees and expenses, including management fees, performance fees, and brokerage included. The figure in your factsheet is what you would have earned after all costs.
2. What does it mean if my PMS return is lower than the benchmark?
It means the strategy generated negative alpha in that period. One difficult year with a clear process-based explanation may be acceptable. Sustained under performance over two to three years, on a risk-adjusted basis, warrants a direct conversation with your manager and a reassessment of the allocation.
3. Which is more important: XIRR or TWRR?
TWRR is better for evaluating the manager’s skill because it removes the effect of cash flows. XIRR is better for evaluating your personal investment outcome. Both numbers matter, but they answer different questions.
4. How often should I compare my PMS against its benchmark?
At least annually, and ideally across rolling three-year and five-year periods rather than focusing solely on short-term performance.
5. Should I exit a PMS after one year of underperformance?
Not necessarily. The key question is whether the strategy remains consistent with its stated process and whether underperformance is temporary or part of a longer pattern. Evaluating performance across a market cycle is generally more meaningful than focusing on a single year.
