NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Portfolio Management Process
A PMS portfolio started the year at Rs 50,00,000 and ended at Rs 56,00,000 with no inflows or outflows. Its benchmark returned 9% over the same year. What is the portfolio's excess return over the benchmark?
The excess return is 3%. The portfolio grew from Rs 50 lakh to Rs 56 lakh, a 12% return, and subtracting the benchmark's 9% leaves 3 percentage points of outperformance.
- A3%Correct
- B9%
- C12%
- D21%
Explanation
Portfolio return = (56,00,000 - 50,00,000)/50,00,000 = 12%. Excess return = 12% - 9% = 3%. Choosing 12% ignores the benchmark, and 21% wrongly adds the two returns.
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