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

A mutual fund scheme's returns have a standard deviation of 18% per annum, while its benchmark index has a standard deviation of 15%. What does this primarily indicate about the scheme?

The scheme has shown higher volatility than its benchmark, because standard deviation measures how widely returns vary around their average. A figure of 18% against 15% means greater dispersion of returns, not necessarily higher returns or a specific beta.

  1. AThe scheme has shown higher volatility of returns than the benchmarkCorrect
  2. BThe scheme has given higher returns than the benchmark
  3. CThe scheme has lower risk than the benchmark
  4. DThe scheme has a beta of exactly 1.2

Explanation

Standard deviation measures the dispersion of returns around their average, so it is a measure of total volatility. A higher figure (18% vs 15%) means more volatility. It says nothing directly about the level of return, and beta is a different measure based on covariance with the market.

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