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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 the purpose of benchmarking a mutual fund scheme to an index such as the Nifty 50 TRI?

A benchmark gives a reference point to evaluate a scheme's performance relative to an index that reflects its investment style. It helps judge whether the fund manager has added value, but it neither guarantees outperformance nor sets expenses or loads.

  1. AIt guarantees the scheme will outperform the index
  2. BIt provides a reference to evaluate the scheme's performance against its investment styleCorrect
  3. CIt fixes the maximum expense ratio the scheme can charge
  4. DIt determines the exit load applicable on the scheme

Explanation

A benchmark is a standard that matches the scheme's investment mandate, so investors can judge whether the fund manager has added value. It does not guarantee returns, nor does it set expenses or exit load. A Total Return Index is preferred as it includes reinvested dividends.

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