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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 using a benchmark when evaluating a portfolio manager's performance?

A benchmark gives a reference point for comparing the manager's returns. An appropriate index reflecting the strategy's style lets the investor judge whether the manager added value over a passive alternative. It does not guarantee returns or decide fees.

  1. ATo guarantee a minimum return to the investor
  2. BTo provide a reference against which the manager's returns can be comparedCorrect
  3. CTo fix the fees the manager may charge
  4. DTo decide the minimum investment amount for the client

Explanation

A benchmark is a yardstick, typically a relevant market index, used to judge whether a manager has added value over a passive alternative. It does not guarantee returns, set fees, or determine the minimum investment.

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