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

Which of the following best describes the purpose of choosing a benchmark when evaluating a portfolio manager's performance?

A benchmark gives a yardstick that matches the portfolio's investment style and universe, so the manager's returns can be compared fairly against it. It does not guarantee returns, determine fees, or set the minimum investment amount for a client.

  1. ATo guarantee a minimum return to the client
  2. BTo provide a yardstick that reflects the portfolio's investment style against which returns can be comparedCorrect
  3. CTo fix the fees payable to the portfolio manager
  4. DTo decide the minimum investment amount of the client

Explanation

A benchmark is a reference index that mirrors the strategy's investment universe and style, so the manager's returns can be judged fairly. It does not guarantee returns, set fees or set minimum investment size. Returns are assessed relative to it.

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