NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Role of Portfolio Managers
A PMS client invests Rs 50,00,000 at the start of the year. At year end the portfolio value is Rs 58,00,000 after all fees and expenses, with no other inflows or outflows. What is the post-fee absolute return?
The absolute return is 16%. The gain is Rs 8,00,000 (58 lakh minus 50 lakh), and dividing this by the initial investment of Rs 50,00,000 gives 0.16, or 16%. The base must be the opening value, not the closing value.
- A14%
- B16%Correct
- C13.8%
- D8%
Explanation
Absolute return = (58,00,000 - 50,00,000) / 50,00,000 = 8,00,000 / 50,00,000 = 16%. Option A wrongly divides the gain by the ending value (8/58 = 13.8%, option C) or is otherwise miscalculated. Option D uses the gain in lakhs as a percentage, ignoring the base.
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