NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Performance Measurement and Evaluation of Portfolio Managers
A PMS portfolio manager's portfolio value rose from Rs 50,00,000 to Rs 56,00,000 over one year with no inflows or withdrawals. What is the absolute return for the year?
The absolute return is 12%. The gain of Rs 6,00,000 is divided by the opening value of Rs 50,00,000, because return is always measured on the starting capital when there are no inflows or withdrawals during the period.
- A10%
- B12%Correct
- C14%
- D11.2%
Explanation
Absolute return = (56,00,000 - 50,00,000) / 50,00,000 = 6,00,000 / 50,00,000 = 12%. The 10% option wrongly divides the gain by the ending value of 56 lakh... actually 6/56 = 10.7%, so it is not correct either. The 14% option wrongly adds a spurious amount.
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