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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Performance Measurement and Evaluation of Portfolio Managers

Under the SEBI (Portfolio Managers) Regulations, how is the performance of a portfolio manager's discretionary service generally required to be reported for comparison with other managers?

Performance is reported using the time-weighted rate of return method. It neutralises the effect of client contributions and withdrawals, so different portfolio managers can be compared fairly on their investment skill alone.

  1. AUsing the time-weighted rate of return methodCorrect
  2. BUsing only the absolute profit in rupees
  3. CUsing the simple average of monthly profits
  4. DUsing the highest return of any client

Explanation

SEBI requires portfolio managers to compute performance using the time-weighted rate of return (TWRR) method, which removes the effect of timing of client inflows and outflows. Absolute rupee profit and simple averages do not allow fair comparison.

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