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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Portfolio Management Process

A portfolio of Rs 50,00,000 grows to Rs 57,50,000 over one year, with no inflows or withdrawals. The benchmark returned 12% over the same year. What is the portfolio's excess return over the benchmark?

The excess return is 3%. The portfolio gained Rs 7,50,000 on Rs 50,00,000, a 15% return. Subtracting the benchmark's 12% leaves 3%. Quoting 15% would ignore the benchmark comparison, which is what excess return requires.

  1. A3%Correct
  2. B15%
  3. C2%
  4. D5%

Explanation

Portfolio return = (57,50,000 - 50,00,000)/50,00,000 = 7,50,000/50,00,000 = 15%. Excess return = 15% - 12% = 3%. The option 15% is only the portfolio return, ignoring the benchmark.

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