Are Portfolio Management Fees Tax Deductible?4 min read 22 Jul 2021, 01:50 AM IST
Taxpayers must be taxed on real taxable incomes, not artificially inflated ones
Many investors, high net-worth individuals in particular, invest in the stock markets or debt markets through portfolio management services (PMS). The objective of investing through a PMS is to take advantage of the expertise of the portfolio manager and get a better rate of return on the portfolio. All portfolio managers charge a flat fee as a percentage of the value of the portfolio (generally at least 1%), while some also charge an incentive fee linked to the rate of return that an investor gets. To illustrate, the incentive fee may be 20% of the profits made by the investor, exceeding an 8% per annum return. For an investor who has invested ₹50 lakh in a PMS, the portfolio management fee (PM fee) would be at least ₹50,000 per annum, a sizeable amount in comparison with the return on the portfolio.