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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Performance Measurement and Evaluation of Portfolio Managers

A PMS portfolio manager's performance is compared with a benchmark index that reflects the same investment style as the strategy. What is the main purpose of using such a benchmark?

A benchmark serves as a yardstick to judge whether the portfolio manager added value compared with a passive investment in the same market segment. It does not guarantee returns, set fees, or fix the minimum investment amount for the strategy.

  1. ATo guarantee the client a minimum return equal to the index
  2. BTo provide a yardstick for judging whether the manager added value over a passive alternativeCorrect
  3. CTo fix the fixed management fee payable by the client
  4. DTo decide the minimum investment amount for the strategy

Explanation

A benchmark is a reference point that shows what a passive investment in the same market segment would have earned. Comparing the portfolio with it shows whether the manager's decisions added value. A benchmark does not guarantee returns or set fees or minimum ticket size.

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