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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Performance

Which of the following statements about comparing a mutual fund scheme's performance with its benchmark is correct?

A benchmark should match the scheme's investment objective and asset mix. Only then does comparing returns show whether the fund manager added value. A mismatched index, a very short period, or skipping the benchmark for debt funds would give misleading conclusions.

  1. AThe benchmark should be chosen to match the scheme's investment objective and asset mixCorrect
  2. BAny broad equity index may be used for every scheme
  3. CA scheme beating its benchmark in a single month proves superior management
  4. DBenchmark comparison is unnecessary for debt schemes

Explanation

Performance is meaningful only against a benchmark consistent with the scheme's mandate, such as a large-cap index for a large-cap fund. Using a mismatched index distorts the comparison. One month is too short to judge skill, and debt schemes also have benchmarks.

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