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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Risk, Return and Performance of Funds

A scheme has a beta of 1.4 relative to its benchmark index. If the index rises by 10%, what change in the scheme's return would be expected, all else being equal?

The scheme would be expected to rise by about 14%. Beta of 1.4 means the scheme moves 1.4 times the index, so a 10% index gain multiplied by 1.4 gives 14%. Such a scheme is more volatile than the market and would also fall more in a decline.

  1. AApproximately 7.1%
  2. BApproximately 10%
  3. CApproximately 14%Correct
  4. DApproximately 1.4%

Explanation

Expected scheme move = beta x index move = 1.4 x 10% = 14%. Dividing 10 by 1.4 gives 7.1%, which wrongly inverts the relationship. A beta of 1 would give 10%, and 1.4% ignores the index move.

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