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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Portfolio Management Process

A PMS client's portfolio was worth Rs 50,00,000 at the start of the year. No money was added or withdrawn. It was worth Rs 56,00,000 at the end of the year. The benchmark returned 10% over the same year. What was the portfolio's excess return over the benchmark?

The portfolio earned 12% because the gain of Rs 6,00,000 on Rs 50,00,000 is 12%. Subtracting the benchmark return of 10% gives an excess return of 2 percentage points, which measures how much the portfolio manager outperformed the benchmark.

  1. A2 percentage pointsCorrect
  2. B12 percentage points
  3. C6 percentage points
  4. D1.2 percentage points

Explanation

Portfolio return = (56,00,000 - 50,00,000) / 50,00,000 = 12%. Excess return = 12% - 10% = 2 percentage points. The 12 figure is the absolute return without subtracting the benchmark. The 6 figure is the rupee gain in lakh, not a percentage.

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