NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Risk, Return and Performance of Funds
Fund A has a standard deviation of 18% and Fund B has a standard deviation of 12%, both over the same period and with similar objectives. What can an MFD conclude from this alone?
Fund A's returns have been more volatile. Standard deviation measures how widely a fund's returns vary around their average, so 18% indicates greater fluctuation than 12%. It does not reveal which fund earned more, nor does it predict future losses or indicate beta.
- AFund A has delivered higher returns than Fund B
- BFund A's returns have been more volatile than Fund B'sCorrect
- CFund B is certain to lose money in future
- DFund B has a higher beta than Fund A
Explanation
Standard deviation measures the dispersion of returns around the average, so a higher value means greater volatility. It says nothing about the level of returns, the future outcome, or beta, which measures sensitivity to the market.
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