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

A portfolio is worth Rs 10,00,000 at the start of the year. It grows to Rs 12,00,000 by mid-year, when the client adds Rs 4,00,000, making Rs 16,00,000. It ends the year at Rs 17,60,000. What is the time-weighted return for the year?

The time-weighted return is 32%. Split the year at the cash inflow: the first half returned 20% and the second half returned 10%. Chaining them gives 1.20 times 1.10, which is 1.32, so the return is 32% with the effect of client cash flow removed.

  1. A10.0%
  2. B32.0%Correct
  3. C76.0%
  4. D27.5%

Explanation

Sub-period 1: 12,00,000/10,00,000 = 1.20. Sub-period 2: 17,60,000/16,00,000 = 1.10. Combined = 1.20 x 1.10 = 1.32, so 32%. The 10% option uses only the second period. The 76% option divides total value change by the initial capital, ignoring the added money.

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