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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Performance Measurement and Evaluation

An investor put Rs 1,00,000 in a fund. At the end of year 1 it was worth Rs 1,20,000, and she then added Rs 30,000 making Rs 1,50,000. At the end of year 2 the value was Rs 1,65,000. What is the time-weighted annual return (geometric) over the two years?

The time-weighted return is about 14.9% per year. Year 1 returned 20% and year 2 returned 10% on the post-contribution base of Rs 1,50,000. Compounded, 1.20 times 1.10 is 1.32, and its square root minus one gives roughly 14.9%, unaffected by the cash added.

  1. A15.0% per year
  2. B17.5% per year
  3. Cabout 14.9% per yearCorrect
  4. Dabout 10.0% per year

Explanation

Year 1 return = 20%. Year 2 start value = 1,50,000, end = 1,65,000, so return = 10%. Growth factor = 1.20 x 1.10 = 1.32. Annualised = sqrt(1.32) - 1 = 1.1489 - 1, about 14.9%. The arithmetic mean of 15% ignores compounding.

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