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

Which statement about standard deviation as a measure of a mutual fund's risk is correct?

A higher standard deviation means the fund's returns are more volatile, swinging more widely around the average return. It is a total-risk measure that includes both upside and downside variation. Sensitivity to the market is measured by beta, not standard deviation.

  1. AA higher standard deviation indicates greater volatility of the fund's returns around its average returnCorrect
  2. BA higher standard deviation indicates the fund has outperformed its benchmark
  3. CStandard deviation measures only the downside losses of the fund
  4. DStandard deviation measures the fund's sensitivity to market movements relative to the benchmark

Explanation

Standard deviation captures how widely a fund's returns vary around their mean, so higher means more volatile. It does not compare with a benchmark and counts both upside and downside deviations. Sensitivity to market movement is beta, not standard deviation.

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