NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Performance Measurement and Evaluation of Portfolio Managers
A PMS strategy began the year with a portfolio value of Rs 50,00,000 and ended with Rs 56,00,000. There were no inflows, outflows or fees during the year. 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. Using the ending value as the base would understate the return.
- A10%
- B12%Correct
- C14%
- D10.7%
Explanation
Absolute return = (56,00,000 - 50,00,000) / 50,00,000 = 6,00,000 / 50,00,000 = 12%. The 10% option wrongly uses the ending value as the base (6/56 is about 10.7%, and 10% is just a rounded guess), while 14% is unsupported by the data.
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