Skip to content

NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Selection

A client wants to compare a growth option scheme with a benchmark over the same period. The scheme gave a return of 11% and its benchmark gave 9%. What does the 2% difference represent?

The 2% difference is the excess return, or positive alpha, over the benchmark. It is found by subtracting the benchmark return of 9% from the scheme return of 11%, showing the fund manager added value beyond what the benchmark delivered.

  1. APositive alpha or excess return over the benchmarkCorrect
  2. BThe expense ratio of the scheme
  3. CThe tracking error of the scheme
  4. DThe beta of the scheme

Explanation

The scheme return minus benchmark return, 11% − 9% = 2%, is the excess return over the benchmark (alpha in simple terms). Tracking error is the standard deviation of such differences, and beta measures sensitivity to the market, not a return gap.

Did you get it right without looking?

One question tells you little. A timed set on Mutual Fund Scheme Selection shows your real accuracy, how long you take and where you lose marks.

Practise Mutual Fund Scheme SelectionFree diagnostic mock

More Mutual Fund Scheme Selection questions