Open any PMS factsheet or AIF Disclosure Document, and you’ll run into a wall of terms that sound like they belong in a finance textbook — Alpha, Drawdown, Hurdle Rate, High-Water Mark, XIRR.
None of these is actually complicated once explained properly. But when a fund manager casually drops five of them into a single sentence during a portfolio review call, it’s easy to nod along without really understanding what you’re being told.
This glossary breaks down every term you’re likely to encounter as a PMS or AIF investor in India — grouped by category, explained in plain English, with simple examples so the definitions actually stick.
Why Understanding This Vocabulary Actually Matters
It’s not about sounding financially savvy on a call with your relationship manager.
These terms directly affect the decisions you make: whether a “20% return” is actually good once you account for the benchmark, whether a fee structure is fair once you understand the hurdle rate, and whether a portfolio’s risk level matches what you signed up for.
Investors who understand this vocabulary ask sharper questions — and tend to get better outcomes as a result.
Basic Investment Terms
AUM (Assets Under Management)
The total market value of all the investments a portfolio manager or fund is currently managing — either for one client or across all clients in a strategy.
A higher AUM in a strategy can signal investor trust, but very high AUM in small-cap-focused strategies can sometimes create capacity constraints.
Corpus
The total amount of capital you’ve invested in a PMS or AIF at a given point — essentially your personal contribution to the AUM.
NAV (Net Asset Value)
The per-unit value of a portfolio or fund, calculated by dividing the total value of the assets by the number of units. AIFs typically report performance using NAV, similar to mutual funds.
Portfolio Manager
The SEBI-registered individual or entity responsible for making investment decisions on your behalf. Understanding a portfolio manager’s experience and track record is one of the most important steps in our 10-point PMS provider checklist.
Discretionary PMS
A PMS structure where the portfolio manager has full authority to make buy/sell decisions on your behalf without seeking your approval for each transaction. Most PMS in India operate this way.
Non-Discretionary PMS
A structure where the portfolio manager advises on trades, but you retain final authority to approve or reject each transaction — far less common than the discretionary model.
Performance & Return Terms
Alpha
The extra return a portfolio generates above its benchmark index, after adjusting for risk. If a strategy’s benchmark returned 12% and the strategy itself returned 17%, it generated roughly 5% of alpha.
Alpha is one of the most important—and most overlooked—numbers to check, since a high absolute return with low alpha may mean the entire market performed well, not that the manager added real value.
Benchmark
The market index (such as the Nifty 50, Nifty Midcap 150, or a relevant sectoral index) against which a PMS or AIF strategy’s performance is measured.
Always check performance against the correct benchmark for that strategy’s category — comparing a smallcap strategy’s returns to the Nifty 50 or a largecap strategy’s returns to a small-cap benchmark, for example, would be misleading in either direction.
Once you know what alpha and drawdown mean, see how PMS and AIF returns are actually benchmarked in practice.
Beta
A measure of how volatile a portfolio is relative to its benchmark. A beta of 1.2 means the portfolio has historically moved about 20% more sharply — in both directions — than its benchmark; a beta below 1 suggests relatively lower volatility than the benchmark.
CAGR (Compound Annual Growth Rate)
The annualised rate at which an investment has grown over a period, smoothing out year-to-year fluctuations into a single average yearly growth figure.
CAGR is useful for comparing performance across different time periods, but it can mask sharp interim volatility — always look at year-by-year returns alongside CAGR, not instead of it.
XIRR (Extended Internal Rate of Return)
A more precise return measure than CAGR when you’ve invested or withdrawn money at different points in time (common in PMS, where additional capital is often added gradually). XIRR accounts for the exact timing and size of each cash flow.
Absolute Return
The total percentage gain or loss on an investment over a period, without annualising it. A 40% absolute return over 3 years is very different from a 40% absolute return over 1 year — always check the time period alongside the figure.
Risk Terms
Drawdown
The decline in a portfolio’s value from its highest point (peak) to its lowest point (trough) before recovering, usually expressed as a percentage.
A strategy with a “maximum drawdown of 32%” means that, at its worst point historically, the portfolio was down 32% from its previous peak.
This is one of the most important risk indicators to check before investing — a strategy’s return history means little without also knowing how sharp its worst declines have been.
Volatility
How much a portfolio’s value fluctuates over time. Higher volatility means larger, more frequent swings in value — both up and down — which is why smallcap and midcap-focused strategies typically show higher volatility than largecap-focused ones.
Standard Deviation
The statistical measure most commonly used to quantify volatility — essentially, how far a portfolio’s returns typically stray from its average return. A higher standard deviation signals a wider range of likely outcomes, both positive and negative.
Sharpe Ratio
A measure of risk-adjusted return — essentially, how much return a portfolio generated for each unit of risk taken.
A higher Sharpe Ratio suggests the manager generated returns more efficiently relative to the risk involved, which is often a more meaningful comparison point than raw returns alone.
Concentration Risk
The risk that arises when a portfolio holds a small number of stocks or is heavily weighted toward a few sectors.
Concentrated portfolios (common in many PMS strategies) can outperform sharply when their top holdings do well, but underperform just as sharply if those bets go wrong.
Fee & Cost Terms
Fixed Fee
An annual management fee charged as a flat percentage of your invested assets, regardless of the portfolio’s performance.
Profit-Sharing Fee (Performance Fee)
A fee charged as a percentage of the profits your portfolio generates above a pre-agreed threshold, rather than as a flat percentage of assets.
Hurdle Rate
The minimum return a portfolio must generate before the manager becomes eligible to earn a profit-sharing fee.
If the hurdle rate is 10% and your portfolio returns exactly 10%, no performance fee applies — only returns above that threshold are eligible for a performance-based charge.
High-Water Mark
A protection mechanism ensuring a performance fee is only charged on genuinely new gains — i.e., returns that take your portfolio above its previous highest recorded value — not on a mere recovery back to a prior peak after a loss.
Exit Load
A charge applied if you withdraw your investment within a specified period (commonly the first year), designed to discourage short-term exits. Exit loads typically reduce or disappear the longer you remain invested.
Once you understand terms like exit load and lock-in, see how the redemption process works when exiting a PMS.
GST on Fees
An 18% Goods and Services Tax applied on top of the management/performance fee charged by a PMS or AIF, in line with standard Indian tax law on financial services.
Regulatory & Structural Terms
SEBI (Securities and Exchange Board of India)
The regulatory body overseeing PMS providers, AIFs, mutual funds, and the broader Indian securities market. Every legitimate PMS and AIF provider must be SEBI-registered.
Disclosure Document
A mandatory document every SEBI-registered PMS provider must furnish to investors, detailing the strategy, fee structure, risks, past performance, and other key terms before investment.
Always request and read this before committing capital.
Curious who enforces these definitions? Here’s who regulates PMS and AIF providers in India.
Custodian
An institution responsible for safely holding your portfolio’s securities on your behalf, separate from the portfolio manager, adding a layer of safety and independent record-keeping to your investment.
AIF (Alternative Investment Fund)
A privately pooled investment vehicle in India, regulated by SEBI, divided into Category I, II, and III based on the type of investment strategy.
For a deeper look at fund structures, our AIF Category I, II and III breakdown expands on several terms defined here.
FEMA (Foreign Exchange Management Act)
The regulatory framework governing cross-border investment flows in India, relevant for NRIs investing in PMS or AIFs from abroad.
Quick-Reference Glossary Table
| Category | Term | Definition | Example |
| Basics | AUM (Assets Under Management) | Total market value of all investments a manager is currently managing | A PMS with ₹500 crore AUM manages that much across all its clients combined |
| Basics | Corpus | The total capital you personally have invested in a PMS/AIF | If you invested ₹75 lakh, that ₹75 lakh is your corpus |
| Basics | NAV (Net Asset Value) | Per-unit value of a portfolio or fund | Used to track AIF performance similar to mutual funds |
| Basics | Portfolio Manager | SEBI-registered person/entity making investment decisions for you | Always check their experience and track record before investing |
| Basics | Discretionary PMS | Manager has full authority to trade without your prior approval | Most PMS in India operate on this model |
| Basics | Non-Discretionary PMS | Manager advises, but you approve each trade | Less common structure in India |
| Performance | Alpha | Extra return generated above the benchmark, adjusted for risk | Benchmark returns 12%, strategy returns 17% = ~5% alpha |
| Performance | Benchmark | Market index used to measure a strategy’s performance | A midcap PMS should be benchmarked against a midcap index, not Nifty 50 |
| Performance | Beta | Volatility of a portfolio relative to its benchmark | Beta of 1.2 = historically ~20% more volatile than the benchmark |
| Performance | CAGR | Annualised average growth rate over a period | Smooths year-to-year swings into one yearly growth figure |
| Performance | XIRR | Return measure accounting for timing/size of multiple cash flows | Useful when capital is added or withdrawn at different times |
| Performance | Absolute Return | Total percentage gain/loss over a period, not annualised | 40% over 3 years is very different from 40% over 1 year |
| Risk | Drawdown | Decline from a portfolio’s peak value to its lowest point | Max drawdown of 32% = worst historical fall from a prior peak |
| Risk | Volatility | Degree of fluctuation in portfolio value over time | Smallcap strategies typically show higher volatility than largecap |
| Risk | Standard Deviation | Statistical measure of how far returns stray from the average | Higher = wider range of possible outcomes, both ways |
| Risk | Sharpe Ratio | Risk-adjusted return — return generated per unit of risk taken | Higher Sharpe Ratio = more efficient risk-adjusted performance |
| Risk | Concentration Risk | Risk from holding few stocks or being sector-heavy | Common in high-conviction PMS portfolios of 10-15 stocks |
| Fees | Fixed Fee | Flat annual fee on assets, regardless of performance | Typically 1%-3% p.a. of your invested assets |
| Fees | Profit-Sharing Fee | Fee charged as a share of profits above a threshold | Typically 10%-20% of profits above the hurdle rate |
| Fees | Hurdle Rate | Minimum return before a performance fee applies | Usually 8%-12% p.a. — no performance fee below this |
| Fees | High-Water Mark | Ensures fees apply only to genuinely new portfolio highs | Protects you from paying fees on mere recovery after a loss |
| Fees | Exit Load | Charge for withdrawing within a set early period | Typically 1%-3% if redeemed within the first year |
| Fees | GST on Fees | 18% tax applied on top of management/performance fees | Standard tax treatment across all PMS/AIF providers |
| Regulatory | SEBI | Regulatory body overseeing PMS, AIF, mutual funds in India | Every legitimate provider must be SEBI-registered |
| Regulatory | Disclosure Document | Mandatory document detailing a strategy’s full terms and risks | Always request and read this before investing |
| Regulatory | Custodian | Independent institution holding your portfolio’s securities | Adds a layer of safety separate from the portfolio manager |
| Regulatory | AIF (Alternative Investment Fund) | Privately pooled investment vehicle regulated by SEBI | Divided into Category I, II, and III based on strategy type |
| Regulatory | FEMA | Regulatory framework governing cross-border investment flows | Relevant for NRIs investing in PMS/AIF from abroad |
How to Actually Use These Terms When Evaluating a PMS or AIF
Knowing the definitions is only half the value — here’s how to apply them practically:
- When reviewing performance, always check alpha and benchmark-adjusted returns, not just the absolute return figure
- When reviewing risk, ask specifically for maximum drawdown and standard deviation data, not just a return chart
- When reviewing fees, confirm the hurdle rate, whether a high-water mark applies, and the exit load schedule before signing anything
- Always request the Disclosure Document and confirm SEBI registration before investing
Frequently Asked Questions
What is the difference between alpha and absolute return?
Absolute return tells you the total gain or loss on your investment. Alpha tells you how much of that gain came from the manager’s skill, above and beyond what the broader market (benchmark) delivered on its own.
Why does drawdown matter more than most investors think?
Return figures only tell part of the story. A strategy that returned 20% annually but experienced a 40% drawdown along the way requires a very different risk tolerance than one that returned 15% annually with a 15% maximum drawdown — even though the first has a higher headline return.
Is a higher Sharpe Ratio always better?
Generally, yes — a higher Sharpe Ratio means the strategy generated better returns for the amount of risk taken. However, it should still be considered alongside drawdown, alpha, and consistency, not in isolation.
What’s the difference between a hurdle rate and a benchmark?
A hurdle rate determines when a performance fee becomes payable — it’s a fee-related threshold. A benchmark is used purely to evaluate investment performance, independent of fees. A strategy could beat its benchmark yet still not cross its hurdle rate, or vice versa, depending on how each is defined.
Where can I find these terms explained for my specific PMS or AIF?
Every SEBI-registered provider’s Disclosure Document will define these terms as they apply to that specific strategy. If any term isn’t clearly explained, that’s a fair reason to ask direct questions before investing.
Explore Portfolio Management Services and Alternative Investment Funds across India’s SEBI-registered providers, or check our Top 10 PMS in India list to start building your shortlist.