NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Performance

Scheme Performance Evaluation and Disclosures for NISM Series V-A

Updated 11 October 2026 · Fact-checked

Scheme performance evaluation means judging a mutual fund against its benchmark and true peers, over several periods, after adjusting for risk and cost. You read the factsheet, check consistency, and separate manager skill from market moves. Past performance must be disclosed fairly and is never a guarantee of future returns.

Understand Scheme Performance Evaluation and Disclosures

A fund's return on its own tells you little. A 12% return is poor if the benchmark gave 15%, and good if it gave 8%. So you always compare with something. That is the core of performance evaluation.

There are three comparisons. First, the benchmark, which is the index the scheme is measured against. Second, the peer group, which means schemes in the same SEBI category with a similar mandate. Comparing a large cap fund with a small cap fund is a mistake. Third, the scheme's own history, to see whether returns are steady.

Consistency matters more than one big year. Check returns over several periods, such as 1, 3 and 5 years, and across rolling periods. A fund that topped the chart once but lags in other years may have been lucky. Also look at risk. A higher return taken with much higher volatility is not necessarily better, so risk-adjusted measures such as the Sharpe ratio help.

Performance attribution breaks the return into causes. For equity funds the two main sources are asset allocation (how much in each sector or asset class) and security selection (which stocks were picked). It tells you whether the manager added value or just rode the market.

The fund factsheet is a periodic document with the scheme's objective, fund manager, NAV, AUM, portfolio holdings, top sectors, returns versus benchmark, risk ratios, expense ratio and portfolio turnover. A high portfolio turnover ratio means frequent trading, which raises transaction costs. A higher expense ratio reduces the return investors keep, since the NAV is stated after expenses. Under SEBI rules, performance advertised or disclosed must be fair, based on standard methods, and carry the warning that past performance may or may not be sustained in future.

Key formulas to remember

Absolute return: (Ending NAV − Beginning NAV) ÷ Beginning NAV × 100; Used for periods up to one year. Adjust for dividends or income distribution if paid.
CAGR: CAGR = (Ending NAV ÷ Beginning NAV)^(1 ÷ n) − 1; Used for periods longer than one year, where n is the number of years.
Excess return over benchmark: Scheme return − Benchmark return; A positive value means the scheme outperformed. Compare the same period and use the Total Return Index version of the benchmark.
Portfolio turnover ratio: Lower of purchases or sales of securities ÷ Average AUM; Shows trading activity. Higher turnover generally means higher transaction costs.
Disclosure warning: Past performance may or may not be sustained in future; Past returns must carry this caution and must never be presented as assured or guaranteed.

How to solve Scheme Performance Evaluation and Disclosures questions

Use the same sequence for any question on evaluating a scheme or its disclosures.

1Identify what the question asks: a calculation, a comparison, a factsheet item or a disclosure rule.
2Check the like-for-like basis: same category, same benchmark and same time period.
3For a return, use absolute return for up to one year and CAGR beyond one year.
4Compare with the benchmark and peers, and note the excess return.
5Look at consistency across periods and at risk, not only the latest return.
6For disclosure questions, pick the option that is fair, balanced and carries the past-performance caution.
7Eliminate options that promise or guarantee returns, or rank funds on a single period.

Quickest way: Like-for-like check

When to use it: Use it when options compare funds or quote returns and time is short.

Ask: is the comparison against the right benchmark or category?
If a guarantee or a single-period ranking appears, reject it.
For calculations, use CAGR only if the period exceeds one year.
Prefer the option mentioning consistency, risk-adjusted return or cost.

Common mistakes in Scheme Performance Evaluation and Disclosures

Choosing the fund with the highest one-year return as the best fund.
Recent returns are the easiest figure to see and feel convincing.
Fix: Check multiple periods, consistency, risk and benchmark comparison before judging.
Comparing funds from different categories.
Funds appear in one list, so they look comparable.
Fix: Compare only within the same SEBI category with a similar mandate and benchmark.
Ignoring costs and turnover when explaining lower returns.
Students focus only on stock picks.
Fix: Remember that a higher expense ratio and heavy trading reduce what the investor keeps.
Using absolute return for a multi-year period.
It is simpler to compute.
Fix: Annualise with CAGR when the period is more than one year.
Treating past performance as a promise.
Strong numbers feel predictive.
Fix: Remember the required caution that past performance may or may not be sustained, and that returns are never guaranteed.

Worked examples

Example 1

A scheme's NAV rose from ₹20 to ₹28.8 in 2 years, with no income distribution. Its benchmark gave a CAGR of 15%. Did the scheme outperform, and by how much?

Show the solution

Growth ratio = 28.8 ÷ 20 = 1.44.
The period is 2 years, so CAGR = (1.44)^(1/2) − 1.
√1.44 = 1.2, so CAGR = 1.2 − 1 = 0.20, or 20%.
Excess return = 20% − 15% = 5%.

Answer: The scheme outperformed its benchmark by 5 percentage points a year (CAGR 20% against 15%).

Example 2

Which statement about disclosing a scheme's past performance is most appropriate? (a) It is sure to continue, so highlight it. (b) It should be shown fairly, against the benchmark, with the caution that past performance may or may not be sustained. (c) Only the best period should be shown. (d) It need not mention the benchmark.

Show the solution

Past returns do not guarantee future results, so (a) is wrong.
Showing only the best period is selective and misleading, so (c) is wrong.
Comparison with the benchmark is a standard part of fair presentation, so (d) is wrong.
Option (b) is fair, balanced and carries the required caution.

Answer: Option (b).

Exam tips

Expect questions asking what a factsheet shows, such as portfolio, expense ratio, turnover and benchmark returns.
Reject any option that guarantees returns or ranks funds on one period.
Remember that the like-for-like rule means the same category, benchmark and time period.
Link high turnover to higher transaction costs and a higher expense ratio to lower investor returns.
Do not guess numeric rules on disclosure frequency or format. Rely on the workbook wording.

Practice questions from Mutual Fund Scheme Performance

Scheme Performance Evaluation and Disclosures in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA FinalPortfolio Performance Evaluation: Meaning and Need

Scheme Performance Evaluation and Disclosures: frequently asked questions

How do I evaluate a mutual fund's performance?

Compare returns with the benchmark and same-category peers over several periods. Check consistency, risk-adjusted measures and costs. Do not rely on a single year.

How do I read a mutual fund factsheet?

Start with the objective, category and benchmark. Then check the portfolio holdings, sector split, returns against the benchmark, risk ratios, expense ratio and turnover.

Do the expense ratio and portfolio turnover affect returns?

Yes. The expense ratio is deducted from the scheme's assets, so it lowers the NAV return. High turnover usually means higher transaction costs, which can also reduce returns.

Can a distributor say a fund will repeat its past returns?

No. Past performance must be presented fairly with the caution that it may or may not be sustained in future. Promising or guaranteeing returns is not acceptable.