Home / Money / Personal Finance /  What is hurdle rate?
Back

The hurdle rate is the minimum acceptable return on investment (ROI) in a project, considering the risks associated with that project. The higher the risk, the higher will be the hurdle rate.

If the minimum acceptable ROI for a project is 15%, it means that at 15%, you can meet all the costs of the project and earn a reasonable premium on your investment for the risks you take with the project. In this case, 15% becomes your hurdle rate for the project. If the potential return from the project is less than the hurdle rate, you can decide not to invest in the project.

In the case of asset management, it implies the minimum rate of return mandated by an investor or a fund manager. The latter becomes eligible to collect the asset management fee only on beating the hurdle rate. For example, if fund managers promise a hurdle rate of 10%, they can collect the fee only if the return generated is more than 10%. The terms could also be arranged in such a way that the management fee will be paid only on the excess return beyond 10%.

ABOUT THE AUTHOR

Satya Sontanam

Satya Sontanam is a senior content creator at Mint with a keen interest on data crunching, analysis and the story behind trends. She writes on personal finance including investments, regulations and data stories. Before joining Mint in December 2021, Satya worked as research analyst and also a personal finance writer at The Hindu BusinessLine. Satya is a qualified chartered accountant. In her free time, she enjoys doing yoga and listening to podcasts.
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less

Recommended For You

Trending Stocks

×
Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout