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

Two large cap equity funds follow the same benchmark. Fund A has a Sharpe ratio of 0.90 and Fund B has 0.60 over the same period. What does this indicate?

A higher Sharpe ratio shows Fund A delivered more return above the risk-free rate for each unit of total risk, measured by standard deviation. It does not reveal anything directly about costs, beta or portfolio turnover.

  1. AFund A gave higher excess return per unit of total riskCorrect
  2. BFund A has lower expense ratio
  3. CFund A has lower beta than Fund B
  4. DFund A has a higher portfolio turnover

Explanation

The Sharpe ratio is (portfolio return minus risk-free return) divided by standard deviation. A higher value means more excess return per unit of total risk. It says nothing directly about expenses, beta or turnover.

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