Why Your PMS Returns Differ From the Published Strategy Returns

Every quarter, the same conversation plays out between investors and their relationship managers. The factsheet says the strategy's PMS returns were 24% over the last year. The investor's own statement says 13%. Nobody has made an arithmetic error, nobody is hiding anything, and yet the two numbers look like they belong to different products. This article explains, with the actual regulatory text, why published PMS returns will almost never match the PMS returns you personally earn, and what to do about it.

We write from the perspective of a SEBI-registered distributor that reads factsheets and investor statements side by side every day. If you are new to the product, start with our primer on what a PMS is and how it works; this piece assumes you already hold or are evaluating one.

For most of its history, the Indian PMS industry published performance the way each manager saw fit. In May 2019, Business Standard reported that experts were worried about exactly the problem this article addresses. Many firms reported the returns of a model portfolio rather than the actual portfolios held by clients, some return calculations quietly excluded investors who had exited (and disappointed investors are precisely the ones who exit), and the combined firm-level numbers on the regulator's website were not comparable across providers. At the time the industry managed roughly ₹15.6 trillion for over 1,47,300 clients, and its disclosure standards lagged well behind mutual funds.

A model portfolio is fully invested from day one, pays no exit load, has no client-imposed restrictions, and never adds money at the top of a cycle. Real investors do all of those things. So the published PMS returns were, in effect, the returns of an investor who does not exist.

SEBI closed the gap in two stages. The first was the circular of 13 February 2020 (SEBI/HO/IMD/DF1/CIR/P/2020/26), which required portfolio managers to report performance net of all fees and all expenses, including taxes, to include all cash holdings and liquid-fund investments in the performance calculation, to ensure that performance shown in marketing material is identical to what is filed with SEBI, to add a disclaimer that the figures are not verified by SEBI, and to have firm-level performance audited every year. The same circular reshaped the cost side: no upfront fees, brokerage charged at actuals, operating expenses capped at 0.50% per annum of average daily AUM (excluding brokerage), and exit loads capped at 3% in year one, 2% in year two, 1% in year three and nil after three years.

The second stage was the circular of 16 December 2022 (SEBI/HO/IMD/IMD-PoD-2/P/CIR/2022/172), effective 1 April 2023, which is the framework you live under today. It did five things that matter for this discussion:

1. Every Investment Approach (IA) must be tagged to exactly one of four Strategies: Equity, Debt, Hybrid or Multi Asset.
2. The Association of Portfolio Managers in India (APMI) prescribes up to three benchmarks per Strategy, and the manager must pick one for each IA. The APMI equity benchmarks are Nifty 50, S&P BSE 500 and MSEI SX 40, all on a Total Return basis.
3. Whenever an IA's performance is communicated, advertised or published, the manager must present the TWRR of the IA alongside the trailing return of the selected benchmark.
4. When reporting to an individual investor, the manager must present that investor's XIRR for each IA, accompanied by the minimum, maximum and median XIRR across all investors in that IA, together with the IA's TWRR and the benchmark return.
5. Model portfolio returns and the performance of cherry-picked investors may not be mentioned or implied in any communication.

The circular also prescribes the exact disclaimer that must accompany your statement: "Please note that performance of your portfolio may vary from that of other investors and that generated by the Investment Approach across all investors because of 1) the timing of inflows and outflows of funds; and 2) differences in the portfolio composition because of restrictions and other constraints." That sentence is the regulator's own one-line answer to the question in our title. The rest of this article unpacks it.

The framework continues to evolve. On 24 September 2026, SEBI's Board approved new SEBI (Portfolio Managers) Regulations, 2026, widening the investment universe to IPOs, foreign securities and a slice of unlisted debt, and introducing a mutual-fund-only route with a ₹25 lakh minimum and a 1% cap on fixed management fees. The reporting principles that govern how PMS returns are published were built through circulars and remain the operating standard.

The time-weighted rate of return breaks the measurement period into sub-periods at every cash flow, computes the growth rate of each sub-period, and chains them together geometrically. Because each sub-period return is calculated on whatever capital happened to be in the portfolio at that moment, the size and timing of deposits and withdrawals have no effect on the final figure. TWRR answers one question only: how well did the manager grow one rupee that was present for the whole period?

That is why TWRR is the global standard for comparing managers. The CFA Institute's Global Investment Performance Standards (GIPS) are built around time-weighted composite returns for exactly this reason, and SEBI's choice of TWRR for public IA reporting aligns Indian practice with that norm.

The extended internal rate of return, XIRR, is the money-weighted return: the single annualised discount rate at which the present value of everything you put in equals the present value of everything you took out plus what you still hold. Every rupee is weighted by how long it was invested. If you added a large tranche just before a drawdown, XIRR punishes you for it; if you added just before a rally, XIRR rewards you. XIRR answers a different question: how did my money actually grow, on my dates, in my amounts?

Neither number is wrong. They are simply built to answer different questions, and the divergence between them is the first and largest reason your PMS returns differ from the published strategy returns.

Consider an equity IA over a single calendar year. It rises 30% from 1 January to 30 June, then falls 10% from 1 July to 31 December. The IA's TWRR is the chained product: 1.30 × 0.90 − 1 = 17.0%. That is the number that appears on the factsheet, on the APMI portal and in every advertisement.

Now consider three investors in that same IA.

Arjun invested ₹1 crore on 1 January and did nothing else. His portfolio went to ₹1.30 crore by June and ended the year at ₹1.17 crore. His XIRR is 17.0%, identical to the TWRR, because he had a single cash flow at the start.

Meera invested ₹50 lakh on 1 January and, encouraged by the first-half performance, added another ₹50 lakh on 1 July. Her first tranche grew to ₹65 lakh by June; after the top-up she held ₹1.15 crore, which fell 10% to ₹1.035 crore by December. She invested ₹1 crore in total and ended with ₹1.035 crore. Her XIRR works out to roughly 4.7%, a full 12 percentage points below the published 17% for the very same portfolio, managed by the very same team, holding the very same stocks.

Kavita invested ₹1 crore on 1 July after reading about the strategy's strong first half. She ended the year at ₹90 lakh. Her six-month return is −10%, which annualises to roughly −19%.

Under the 2022 circular, all three investors would receive the same TWRR (17%), their own XIRR, and the dispersion across investors in the IA, which in this simplified three-investor world would read: minimum ≈ −19%, median ≈ 4.7%, maximum 17%. Every one of those numbers is correct, and the spread between them is the honest picture of what "the strategy returned 17%" means in practice.

SEBI's disclaimer names two causes. In practice those two headings contain seven distinct mechanisms, and diagnosing your own gap means checking each one.

This is the mechanism illustrated above and usually the dominant one. Because equity returns are lumpy, the order in which good and bad months arrive relative to your deposits determines your XIRR. An investor who joins after a strong run and before a correction will trail the TWRR for a long time, even if the manager subsequently performs well. The reverse holds too: an investor who deployed during a drawdown shows an XIRR far above the TWRR, which is not evidence of manager skill either.

The practical implication is that comparing your XIRR to the IA's TWRR is not a test of the manager. It is a test of your timing. To test the manager, compare the IA's PMS returns with its benchmark and with peers in the same Strategy, both of which SEBI now requires to be disclosed.

When a new client funds an account, the manager rarely buys the full model on day one. Deployment is often staggered over weeks or months, either by design (to average in) or by necessity (illiquid mid- and small-cap names cannot be bought in size without moving the price). During that window a large share of your capital sits in cash or liquid funds earning a few percent while the strategy's existing holdings may be compounding at a much higher rate.

The 2020 circular requires managers to include cash and liquid-fund holdings in the IA's performance calculation, so published PMS returns already reflect the strategy's average cash level across all clients. But your account in its first quarter is not average; it is disproportionately in cash. In a rising market that is a structural lag in your XIRR; in a falling market it is a cushion. Either way, your first-year PMS returns are not comparable to the strategy's, and any comparison should begin only once your portfolio is fully deployed.

The second half of SEBI's disclaimer covers this. Two clients in the same IA can hold different portfolios for legitimate reasons: a client has asked the manager to exclude specific sectors or companies; a security in the model is unavailable or illiquid on the day a new account is built; a client's investor category faces regulatory limits on certain securities; or the manager has been asked to gradually transition an existing stock portfolio rather than start from cash. Each produces PMS returns that track the IA closely but not exactly, and the difference compounds.

SEBI requires the IA's reported TWRR to be net of all fees and expenses, but that net number reflects the manager's aggregate across all clients. Your own plan may differ, and even the same plan produces different net outcomes depending on when profits were booked.

A typical Indian PMS offers a fixed management fee (often 1% to 2.5% of AUM per year), a performance fee (often 10% to 20% of profits, sometimes above a hurdle rate), or a hybrid. Most performance-fee plans include a high-water mark, so the manager cannot charge again on gains that merely recover an earlier loss. Capitalmind's six-year simulation on a ₹1 crore portfolio using a real strategy's returns found that a 1% fixed fee cost ₹11.76 lakh in total, while a performance fee over an 8% hurdle cost ₹31.41 lakh, with a single strong year accounting for ₹13.78 lakh of that. The fixed-fee investor ended the period with roughly ₹19 lakh more capital, despite both being invested in the same strategy with the same gross performance.

The mechanism matters as much as the amount. Performance fees are typically charged annually (or at exit) on that year's profit, so an investor whose account crossed the hurdle in a euphoric year pays heavily, and if the next year erases the gain the fee is not refunded. Two investors in the same IA with different anniversary dates can therefore pay materially different fees on similar gross PMS returns. "Net of fees" for the IA is not the same as net of your fees.

If you have redeemed anything in the first three years, your XIRR carries an exit load that the IA's TWRR does not. Under the 2020 circular the caps are 3%, 2% and 1% of the amount redeemed in years one, two and three respectively, and nil thereafter. A partial redemption in year one to fund a property purchase, for instance, permanently lowers your personal return series relative to the strategy's, and the effect is invisible if you only look at the factsheet.

This one does not change your XIRR, but it changes how you interpret the published TWRR and therefore whether you should be worried about the gap. APMI's equity benchmarks are broad-market indices, and a mid- or small-cap IA is allowed to benchmark itself to BSE 500 TRI. Moneycontrol's analysis of calendar-2024 data found that 14 of 22 mid-cap IAs beat BSE 500 TRI, but only 6 of 22 beat the BSE Midcap 150 TRI; among small-cap IAs, 14 of 18 beat BSE 500 TRI but only 8 of 18 beat BSE 250 SmallCap TRI. A strategy can therefore be reported as a benchmark-beater while trailing the index that actually matches its holdings.

At the industry level the picture is mixed. A July 2026 report citing APMI data found that of 543 discretionary equity IAs with five-year records to May 2026, managing ₹4.12 lakh crore, 57.6% outperformed their chosen benchmark and 42.4% underperformed. Published PMS returns are, on average, competitive with their benchmark, but "their benchmark" is a choice, and the first question about any headline number is which index it was measured against.

The seventh cause is largely historical but still surfaces. Before April 2023, some track records were built on model portfolios, and some decks still carry "since inception" PMS returns that pre-date the ban. The 2022 circular prohibits model-portfolio returns and cherry-picked investor performance, and requires that when an IA's Strategy or benchmark tag changes, the pre-change track record may no longer be used. If a since-inception figure looks implausibly smooth or pre-dates the manager's live client base, ask whether it is a live, audited, all-investor number. Under current rules it must be.

The most under-appreciated line on your statement is the one showing the minimum, median and maximum XIRR across all investors in your IA. It is the regulator's antidote to the model-portfolio problem, because it turns a single flattering number into a distribution.

Read it in three steps. First, locate your own XIRR relative to the median. If you are near it, your PMS returns are typical of the strategy's real investors, and any gap to the TWRR is shared by most people in the product. Second, look at the width of the range. A narrow band between minimum and maximum means investor timing has not mattered much, which usually indicates steady returns and a mature, fully deployed client base. A very wide band means the strategy is volatile enough that entry timing dominates outcomes, which is worth knowing before you add money. Third, compare the median XIRR with the TWRR. If the median investor's PMS returns sit persistently well below the TWRR, most money arrived after the best performance was already in the track record, which is a warning about chasing.

The SEBI investor education portal on PMS is a useful companion for what else your statement must contain, and if you are not receiving the min/median/max figures with your quarterly report, you are entitled to ask for them.

The frustration of seeing a lower personal number can obscure how much better today's disclosure of PMS returns is than it was.

Manager skill is isolated from investor behaviour. TWRR lets you compare two IAs on the quality of decisions, without the noise of when clients added or withdrew money.

You receive your own truth. Mandatory XIRR reporting means you can never be shown only the strategy's PMS returns; your own money-weighted return must be on the page.

Dispersion is visible. The min/median/max disclosure makes the range of real outcomes part of the record.

Model portfolios and cherry-picking are banned. Published PMS returns must reflect aggregated real investors, closing the most serious gap identified in 2019.

Benchmarks are pinned. Each IA is tied to one APMI benchmark and must show performance relative to it and to peers in the same Strategy wherever performance appears.

Numbers are net of everything. Reported TWRR is after all fees, expenses and taxes, and includes cash and liquid funds.

There is an audit trail. Performance statistics are verified in the annual audit under Regulation 30, marketing figures must match SEBI filings, and monthly IA-level PMS returns are published on the APMI portal for anyone to check.

The regime is better, not perfect.

TWRR is not a forecast of your PMS returns. It can be strongly positive while a late entrant's XIRR is negative. The factsheet describes the past for a hypothetical always-invested rupee, not a promise about your rupees.

Benchmark choice can still flatter. A small-cap strategy measured against a large-cap-heavy index can look like it is adding value when it is not. Compare against a style-matched index yourself, or use a platform that does.

Dispersion statistics lack a "why". The min/median/max range shows the spread but not whether your position is due to timing, restrictions, fee plan or a redemption.

Fee plans remain heterogeneous. Two investors in one IA can pay very different fees for the same gross performance; a single net TWRR cannot represent both.

Survivorship effects persist. Analysts such as Wright Research note that discontinued IAs drop out of category averages, and that after costs a meaningful share of PMS strategies do not beat a comparable index fund.

Industry averages mislead. Headlines about PMS assets of ₹43.3 lakh crore (SEBI/APMI data for June 2026, as reported by Business Today) include roughly ₹31 lakh crore of provident-fund money managed under separate rules. IA-level PMS returns are far more informative than industry-wide PMS returns.

The two-line disclaimer on your statement is what we call the inner clause: the sentence everyone scrolls past that actually explains the gap. At PMS Sahi Hai we built our platform around making that clause legible, because hard-earned wealth shouldn't rely on random advice, and it certainly shouldn't rely on a misread factsheet.

Here is how the pieces fit together.

Compare strategies on the right numbers. Our PMS comparison tool lines up Investment Approaches on their SEBI-reported TWRR, their APMI benchmark, and their category peers, so that you are evaluating manager skill against the correct yardstick rather than a flattering one. The same discipline applies to alternatives in our AIF comparison view, where the return-methodology questions are, if anything, more acute. If you are still weighing the two structures, our explainer on what an AIF is covers the differences.

Let Nyra read the disclosures for you. Nyra, your AI Wealth Compass, starts by understanding your risk appetite, horizon and goals, then analyses your existing PMS and AIF holdings for hidden overlap, sector concentration and duplication, the very "portfolio composition" issues that make your account diverge from the model. Nyra's research engine evaluates 1,000+ strategies and surfaces only those that fit your profile and fill genuine gaps, rather than the ones with the most eye-catching since-inception figure.

Decode your own statement. Because Nyra understands the difference between an IA's TWRR and your XIRR, it helps you see whether a gap in your PMS returns is explained by your deployment date, a fee plan wrong for your holding period, or an actual shortfall in the manager's performance against benchmark and peers. That is the difference between reacting to a number and understanding it.

Stay ahead after you invest. The gap between your PMS returns and the strategy's is not fixed at entry; it moves with every top-up, redemption and fee cycle. Nyra keeps your portfolio ahead of time by tracking every investment for life, watching leading indicators such as sector shifts and liquidity, and sending actionable rebalancing alerts. Continuous monitoring is how a discerning investor avoids becoming the "minimum XIRR" in next year's disclosure.

We are a SEBI-registered distributor working with HNIs, NRIs and family offices across India: compare, evaluate and invest — smarter and faster. Read more on our About Us page, or browse our PMS FAQs.

When your next quarterly report arrives, work through the following before drawing any conclusion about your manager.

1. Confirm which number is which. Identify the IA's TWRR, the benchmark's trailing return, your XIRR, and the min/median/max XIRR across investors. All four are required by the 2022 circular.
2. Check whether you are fully deployed. If your account is only months old or you recently added a large tranche, cash drag alone may explain most of the gap in your PMS returns.
3. Map your cash flows against the strategy's monthly returns. If your large inflows cluster just before weak months, timing is your answer.
4. Compare your XIRR to the median, not the TWRR. Your position relative to the median investor is the fair comparison.
5. Identify your fee plan and anniversary date. Estimate what a performance fee crystallised in a strong year cost you relative to a fixed-fee alternative.
6. Account for exit loads. Any redemption inside three years carries a load of up to 3%, 2% or 1% that published PMS returns do not include.
7. Review your restrictions. A negative list or a transferred portfolio means persistent tracking differences; ask the manager to quantify them.
8. Question the benchmark. Compare the IA's TWRR with a style-matched index as well as the APMI benchmark.
9. Check the since-inception date. Ensure long-run PMS returns are live, audited, all-investor numbers, not pre-2023 model results.
10. Only then judge the manager. If the IA's TWRR trails its style-matched benchmark and peers over three to five years, you have a manager problem. If not, you have a timing or structure conversation, which is a very different decision.

Published PMS returns and the PMS returns you earn are two different measurements built for two different purposes, and Indian regulation now requires you to be shown both. TWRR isolates manager skill; XIRR shows what your money did. The gap between them is the arithmetic of your entry dates, deployment period, fee plan, redemptions and restrictions, read against a benchmark that may or may not match the strategy's true style. Use the disclosures SEBI has given you, decompose your gap, and reserve the word "underperformance" for the case where the strategy's TWRR trails the right benchmark and the right peers over a meaningful horizon.

If the number on your statement has ever made you doubt a manager you chose carefully, you now have the tools to find out whether the doubt is justified. Stop comparing your XIRR with a factsheet; start comparing strategies on the right benchmark, the right peers and the right fee plan for you.

Start with Nyra to analyse your existing PMS and AIF holdings for overlap and concentration, see curated strategies matched to your profile, and get a portfolio health report that explains your return gap in plain language. Or talk to the PMS Sahi Hai team if you would rather walk through your statement with a person first. Compare, evaluate and invest — smarter and faster.