Skip to content

NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Risk, Return and Performance of Funds

A fund has a beta of 1.4 against its benchmark index. If the index is expected to fall by 5%, what is the approximate expected change in the fund's return, other things being equal?

The fund is expected to fall about 7%. Beta of 1.4 means the fund moves 1.4 times the index, so a 5% decline in the benchmark translates to roughly a 7% decline in the fund, assuming nothing else changes.

  1. AFall of 3.57%
  2. BFall of 5%
  3. CFall of 7%Correct
  4. DRise of 7%

Explanation

Expected move = beta x index move = 1.4 x (-5%) = -7%. The 3.57% figure comes from dividing by beta instead of multiplying. A positive 7% ignores the sign of the market move.

Did you get it right without looking?

One question tells you little. A timed set on Risk, Return and Performance of Funds shows your real accuracy, how long you take and where you lose marks.

Practise Risk, Return and Performance of FundsFree diagnostic mock

More Risk, Return and Performance of Funds questions