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

Which statement about standard deviation of a mutual fund scheme's returns is correct?

Standard deviation measures how much a fund's returns vary around their average, making it a gauge of total volatility. A higher figure means returns are more spread out and the fund is riskier, whereas beta and alpha capture market sensitivity and excess return.

  1. AIt measures the fund's return relative to the benchmark's return
  2. BIt measures the total variability of the fund's returns around their average, so higher means more volatileCorrect
  3. CIt measures only the downside losses suffered by the fund
  4. DIt measures the sensitivity of the fund to market movements

Explanation

Standard deviation captures how widely periodic returns disperse around the mean, so it is a measure of total risk. Sensitivity to the market is beta, and return relative to the benchmark is alpha or tracking measures. It does not isolate downside only.

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