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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Risk, Return and Performance of Funds

Which of the following best describes 'standard deviation' when used to assess a mutual fund scheme?

Standard deviation measures the volatility of a scheme's returns around their average. A higher figure means returns swung more widely, indicating greater total risk. It is not an average return, an excess return over the benchmark, or a measure of sensitivity to the market, which is beta.

  1. AThe average return earned by the scheme over a year
  2. BA measure of the volatility of the scheme's returns around its average returnCorrect
  3. CThe excess return of the scheme over its benchmark
  4. DThe sensitivity of the scheme's returns to movements in the market index

Explanation

Standard deviation measures how widely a scheme's periodic returns are dispersed around their mean, so it indicates total risk or volatility. Average return is a measure of return, excess return over benchmark is alpha-like, and sensitivity to the market is beta.

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