NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Portfolio Management Process
A PMS portfolio is worth ₹1,00,000 at the start of the year and ₹1,26,000 at the end, with no cash flows in between. The benchmark returned 18%. The portfolio's excess return over the benchmark, and the correct reading, is:
The portfolio returned 26 percent, since the value rose from 1,00,000 to 1,26,000. Subtracting the benchmark's 18 percent gives an excess return of 8 percentage points, so the portfolio outperformed its benchmark by that margin.
- A+8 percentage points, portfolio outperformedCorrect
- B+7 percentage points, portfolio outperformed
- C-8 percentage points, portfolio underperformed
- D+26 percentage points, portfolio outperformed
Explanation
Portfolio return = (1,26,000 - 1,00,000) / 1,00,000 = 26%. Excess return = 26% - 18% = 8 percentage points. Option +7 mis-subtracts, and -8 reverses the sign. +26 ignores the benchmark entirely.
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