Skip to content

NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Selection

Two equity funds have the same 5-year average annual return of 14%. Fund A has a standard deviation of 12% and Fund B has 18%. Other things being equal, what is the best inference for scheme selection?

Fund A is better on a risk-adjusted basis. Both funds earned the same 14% average return, but Fund A did so with a lower standard deviation of 12% against 18%, meaning less volatility and a more efficient return per unit of risk taken.

  1. AFund A delivered that return with less volatility, so it is better on a risk-adjusted basisCorrect
  2. BFund B is better because higher volatility means higher returns
  3. CBoth are equally good since returns are identical
  4. DFund B is better because its standard deviation is higher

Explanation

With identical returns, the fund with lower standard deviation gave a better return per unit of risk. Higher volatility does not guarantee higher return; here Fund B took more risk for no extra return.

Did you get it right without looking?

One question tells you little. A timed set on Mutual Fund Scheme Selection shows your real accuracy, how long you take and where you lose marks.

Practise Mutual Fund Scheme SelectionFree diagnostic mock

More Mutual Fund Scheme Selection questions