📊 NISM Series V-DChapter 11 of 22⚖ 5 of 150 marks weightage
Ch.11: Mutual Fund Scheme Performance
Practice questions for NISM-Series-VD: Mutual Fund - Specialised Investment Fund Distributors Certification Examination, Chapter 11: Mutual Fund Scheme Performance — covering benchmarking (selection, importance, limitations), types of returns (rolling, annualized, total return vs. NAV return), risk-adjusted measures (Jensen's Alpha, Treynor Ratio, Information Ratio, R-squared), Tracking Error, Portfolio Turnover, and qualitative factors like AUM in fund evaluation. Carries 5 out of 150 marks. The exam has 150 MCQs, 60% passing score, and −10% negative marking per wrong answer.
45
MCQ
45
Total Qs
5
Exam Marks
60%
Pass Score
-10%
Neg. Marking
What You Will Learn in This Chapter
Benchmarking mutual fund performance — purpose, selection criteria, and limitations of benchmark comparisons
Types of returns — rolling returns, annualized returns, and the distinction between total return and NAV return
Risk-adjusted performance measures — Jensen's Alpha, Treynor Ratio (vs. Sharpe Ratio), Information Ratio, and R-squared
Tracking Error and Portfolio Turnover Ratio as fund manager performance indicators, and the impact of costs on performance
Interpreting factsheets, performance disclosure/presentation standards, and qualitative factors (like AUM) relevant to fund selection
Which type of benchmark is generally considered most appropriate for evaluating the performance of a multi-cap equity fund, which invests across large, mid, and small-cap companies?
AA pure large-cap index (e.g., Nifty 50)
BA pure small-cap index (e.g., Nifty Smallcap 250)
CA blended index or a customized benchmark reflecting its investment universe.
DA fixed income index, as it offers diversification.
Q5MCQMediumBenchmarking - Importance and Selection
When selecting a benchmark for an equity mutual fund scheme, which of the following is the most crucial characteristic for it to be considered appropriate?
AThe benchmark must always be an index with higher returns than the fund.
BThe benchmark should reflect the investment universe, style, and market capitalization focus of the fund.
CThe benchmark must be composed only of large-cap stocks, regardless of the fund's strategy.
DThe benchmark should be difficult for the fund to outperform.
Q6MCQEasyBenchmarking - Purpose
What is the primary purpose of selecting an appropriate benchmark for a mutual fund scheme?
ATo ensure the fund manager strictly replicates the benchmark's portfolio composition.
BTo provide a standard against which the fund's performance can be objectively compared.
CTo determine the maximum expense ratio the fund can charge.
DTo guarantee a minimum return for the fund's investors.
Q7MCQHardBenchmarking - Selection and Limitations
When evaluating the performance of an actively managed diversified equity fund, which characteristic of a benchmark index is most crucial for a meaningful comparison?
AThe benchmark index has the highest historical returns among its peers.
BThe benchmark index reflects the fund's investment style and universe.
CThe benchmark index is widely known and tracked by many other funds.
DThe benchmark index has the lowest volatility.
Q8MCQMediumBenchmarking Mutual Fund Performance
What is a key characteristic that defines an 'appropriate' benchmark for an equity diversified mutual fund?
AIt must always be a global equity index to ensure diversification.
BIt should be an index that the fund manager can easily outperform consistently.
CIt should be representative of the fund's investment universe and investment style, and ideally investable.
DIt must be a debt index to provide a contrast to equity performance.
Q9MCQMediumBeta and Systematic Risk
A diversified equity fund has a Beta of 0.80. If the market (represented by its benchmark index) rises by 12% in a given period, what would be the *expected* movement in the fund's NAV due to market correlation, assuming all other factors are constant?
AA rise of 8.00%
BA rise of 9.60%
CA rise of 12.00%
DA fall of 9.60%
Q10MCQMediumExpense Ratio
A mutual fund has an expense ratio of 1.5% and a comparable fund has an expense ratio of 0.5%. Assuming both funds generate the same gross return before expenses, what is the long-term impact of this difference on investor wealth?
AThe fund with 1.5% expense ratio will always generate 1% lower absolute returns annually.
BThe fund with 0.5% expense ratio will compound investor wealth significantly more over the long term due to lower drag.
CThe difference in expense ratio only impacts short-term returns, not long-term.
DHigher expense ratios are justified if the fund manager generates higher gross returns.
Q11MCQEasyFactors Affecting NAV and Performance
Which of the following factors, while not directly part of the market's movement, significantly influences a mutual fund's Net Asset Value (NAV) on a daily basis?
AThe launch of a new mutual fund scheme by a competitor AMC.
BThe fund's daily operational expenses and management fees.
CChanges in global macroeconomic policy statements unrelated to India.
DThe personal financial goals of individual unitholders.
Q12MCQMediumFund Manager's Role - Tracking Error
An index fund, whose objective is to replicate the performance of the Nifty 50 index, consistently shows a high tracking error. This situation primarily indicates that the fund:
AIs outperforming its benchmark significantly.
BIs taking on excessive credit risk.
CIs deviating substantially from its intended benchmark.
DHas a very low expense ratio.
Q13MCQEasyImpact of Costs on Performance
If a mutual fund scheme generated a gross return of 12% before expenses and had an expense ratio of 2.25%, what would be the approximate net return to the investor?
A14.25%
B9.75%
C12.00%
D10.75%
Q14MCQEasyInterpretation of Performance Data - Limitations
Which of the following statements regarding the past performance of a mutual fund is most accurate as per SEBI regulations and standard industry practice?
APast performance is the sole indicator of future returns.
BPast performance guarantees future returns.
CPast performance is indicative of future returns, but not a guarantee.
DPast performance has no relevance for future investment decisions.
Q15MCQEasyInterpreting Factsheets
Which of the following is NOT typically found in a mutual fund's monthly factsheet?
APortfolio Turnover Ratio
BExpense Ratio
CDetailed breakdown of fund manager's personal investments
DExit Load structure
Q16MCQHardJensen's Alpha
A mutual fund scheme reports a positive Jensen's Alpha. What does this primarily indicate about the fund's performance?
AThe fund generated returns exactly in line with what was expected for its systematic risk according to the Capital Asset Pricing Model (CAPM).
BThe fund underperformed its expected return given its systematic risk, indicating poor stock selection.
CThe fund generated excess returns beyond what was expected for its systematic risk, indicating superior stock selection or timing.
DThe fund's total risk (measured by standard deviation) was lower than its systematic risk (measured by Beta).
Q17MCQHardLimitations of Performance Evaluation
Which of the following biases in mutual fund performance data refers to the tendency for poorly performing funds to be delisted or merged, thus removing them from historical datasets and artificially inflating average past returns?
ALook-back bias
BData snooping bias
CSurvivorship bias
DSelection bias
Q18MCQHardMeaning of Returns - Rolling Returns
Why are rolling returns often considered a superior measure for evaluating the consistency of a mutual fund's performance over various market cycles, compared to point-to-point Compounded Annual Growth Rate (CAGR)?
ARolling returns only consider the best-performing periods, exaggerating consistency.
BRolling returns eliminate the impact of the fund's expense ratio.
CRolling returns mitigate the bias introduced by arbitrary start and end dates of a single period.
DRolling returns are always higher than point-to-point CAGR for the same period.
Q19MCQMediumMeasures of Risk - R-squared
An equity mutual fund consistently maintains a high R-squared value (e.g., above 0.90) relative to its benchmark index. What does this generally imply about the fund's portfolio?
AThe fund has a very high alpha, indicating superior stock selection.
BThe fund's returns are largely explained by the movements of its benchmark index.
CThe fund is highly diversified across various asset classes.
DThe fund's risk-adjusted returns are consistently superior to the benchmark.
Q20MCQMediumMeasuring Returns - Rolling Returns
Which of the following statements regarding 'Rolling Returns' in mutual funds is most accurate?
ARolling returns measure the fund's performance over a fixed period, calculated only at the end of each financial year.
BRolling returns provide a better perspective on the consistency of a fund's performance over multiple overlapping periods.
CRolling returns are primarily used to compare a fund's performance against its benchmark at a single point in time.
DRolling returns consider only the capital appreciation component, excluding dividends and interest income.
Q21MCQHardPerformance Attribution
Which of the following components is typically NOT a primary focus of performance attribution analysis for a mutual fund scheme?
AMarket timing skill
BSecurity selection skill
CSector allocation decisions
DThe fund's advertising expenditure
Q22MCQMediumPerformance Benchmarking
Which characteristic is most crucial when selecting an appropriate benchmark for an actively managed diversified equity mutual fund?
AThe benchmark should consistently underperform the fund.
BThe benchmark should be easily understood by all investors.
CThe benchmark should reflect the fund's investment style, universe, and market capitalization focus.
DThe benchmark should have the lowest possible standard deviation.
Q23MCQMediumPerformance Benchmarks
When selecting an appropriate benchmark for a mutual fund scheme, which of the following is generally considered a crucial characteristic?
AThe benchmark should always be a broad market index, regardless of the fund's investment objective.
BThe benchmark should be investable and transparent.
CThe benchmark should primarily consist of actively managed funds for comparison.
DThe benchmark's returns should consistently be lower than the fund's expected returns.
Q24MCQEasyPerformance Disclosure Requirements
As per SEBI regulations, what is the minimum standard period for which mutual fund scheme performance must be disclosed in advertisements and factsheets to ensure transparency?
ALast 1 year, Last 3 years, Last 5 years, and Since Inception
As per SEBI/AMFI guidelines, which of the following periods for past performance disclosure is mandatory for mutual funds in their advertisements and offer documents?
ALast 6 months, 1 year, and 3 years only.
BLast 1 year, 3 years, 5 years, and since inception.
CLast 1 month, 6 months, and 1 year.
DLast 1 year, 2 years, and 3 years only.
Q26MCQMediumPerformance Ratios - Portfolio Turnover Ratio
A high portfolio turnover ratio in an actively managed equity mutual fund typically suggests which of the following?
ALower transaction costs for the fund
BA strategy focused on long-term capital appreciation
CMore frequent buying and selling of securities by the fund manager
DReduced impact of short-term capital gains tax
Q27MCQHardPerformance Reporting and Disclosure
According to SEBI regulations, when a mutual fund scheme advertises its performance, which of the following is a mandatory disclosure requirement?
ADisclosure of performance only for the last one year.
BComparison of the scheme's performance with a peer group, even if no suitable benchmark exists.
CDisclosure of performance for 1-year, 3-year, 5-year, and 'since inception' periods, along with the benchmark performance for the same periods.
DA guarantee that past performance will be sustained in the future.
Q28MCQEasyPortfolio Turnover
A mutual fund scheme reports a portfolio turnover ratio of 50%. What does this generally indicate?
AThe fund manager replaced half of the portfolio's assets in a year.
BThe fund's expense ratio is very low.
CThe fund has invested heavily in liquid assets.
DThe fund manager sold all assets twice in a year.
Q29MCQMediumQualitative aspects of fund selection
Which of the following is considered a qualitative factor when evaluating a mutual fund scheme?
AThe fund's Sharpe Ratio over the last five years.
BThe experience, stability, and investment philosophy of the fund management team.
CThe fund's Standard Deviation over the last three years.
DThe fund's expense ratio compared to its peers.
Q30MCQMediumQualitative Factors - AUM
Which of the following qualitative factors is least likely to directly influence a mutual fund's reported NAV performance, but may affect investor perception and future inflows?
AFund Manager's experience and track record.
BThe Assets Under Management (AUM) of the fund.
CThe expense ratio charged by the fund.
DThe fund's portfolio turnover ratio.
Q31MCQEasyRisk Measurement - Beta
An equity mutual fund has a Beta of 0.85. What does this Beta value primarily indicate about the fund?
AThe fund is expected to outperform the market by 85% in both rising and falling markets.
BThe fund's returns are 85% less volatile than the overall market.
CThe fund is less volatile than the market and is expected to move 85% as much as the market in either direction.
DThe fund has generated an excess return of 0.85% over its benchmark.
Q32MCQMediumRisk Measures (R-squared)
In mutual fund performance analysis, what does a high R-squared value (e.g., above 0.70) in conjunction with Beta primarily indicate?
AThe fund has consistently outperformed its benchmark.
BThe fund's returns are largely explained by the movements of its benchmark index, making its Beta a reliable measure of systematic risk.
CThe fund has a low correlation with its benchmark, indicating effective diversification.
DThe fund's standard deviation is very low, implying minimal total risk.
Q33MCQHardRisk Metrics - R-squared
A diversified equity fund has an R-squared value of 0.95 when compared to its chosen benchmark. Which of the following interpretations is most accurate regarding this R-squared value?
A95% of the fund's returns are explained by the fund manager's stock selection skill.
B95% of the fund's total risk is systematic risk, as measured by its correlation to the benchmark.
C95% of the fund's movement can be attributed to movements in its benchmark index.
DThe fund has outperformed its benchmark by 95% over the measurement period.
A mutual fund scheme's Jensen's Alpha is calculated as +2%. This implies that the fund:
AEarned 2% less than the risk-free rate.
BOutperformed its expected return (as per CAPM) by 2%.
CHad a beta of 2% higher than the market.
DGenerated an absolute return of 2% in excess of its benchmark.
Q35MCQMediumRisk-Adjusted Return Measures (Alpha)
A mutual fund scheme has a positive Alpha of 1.5%. What does this typically signify about the fund manager's performance?
AThe fund has underperformed its benchmark by 1.5% after adjusting for risk.
BThe fund has generated 1.5% excess return due to the fund manager's skill, beyond what would be expected for its level of systematic risk.
CThe fund's total returns were 1.5% higher than the risk-free rate.
DThe fund's volatility was 1.5% lower than the market's volatility.
Q36MCQHardRisk-Adjusted Returns - Information Ratio
A mutual fund scheme's Information Ratio measures the portfolio's excess return per unit of which specific risk?
ATotal risk (Standard Deviation)
BSystematic risk (Beta)
CTracking error
DDownside risk
Q37MCQMediumRolling Returns
An investor wants to assess the consistency of a mutual fund scheme's performance over various market conditions, rather than just its performance over a specific calendar period. Which type of return calculation would be most suitable for this analysis?
AAbsolute Return
BCompound Annual Growth Rate (CAGR)
CRolling Returns
DXIRR (Extended Internal Rate of Return)
Q38MCQMediumSharpe Ratio vs. Treynor Ratio
A fund manager is evaluating two diversified equity portfolios. Portfolio X has a higher Treynor Ratio than Portfolio Y, but Portfolio Y has a higher Sharpe Ratio than Portfolio X. This scenario most likely suggests that:
APortfolio X has a higher unsystematic risk component compared to Portfolio Y.
BPortfolio Y has a higher beta than Portfolio X.
CPortfolio X has better risk-adjusted returns when considering total risk.
DPortfolio Y has outperformed Portfolio X in terms of absolute returns.
Q39MCQEasySources of Performance Data
Where can an investor typically find the most comprehensive and official performance data, including scheme-specific returns, expense ratios, and portfolio holdings, for a mutual fund scheme?
AIn daily business newspaper financial sections.
BOn the fund house's official website and in its monthly/quarterly factsheets.
DFrom independent financial advisors' personal databases.
Q40MCQMediumTotal Expense Ratio (TER)
A mutual fund scheme reports a gross return of 15% for the financial year. If the scheme's Total Expense Ratio (TER) for the same period was 2.25%, what would be the approximate net return to the investor before considering any exit loads or taxation?
A17.25%
B12.75%
C13.00%
D14.75%
Q41MCQEasyTotal Return vs. NAV Return
Which of the following components is included in the 'Total Return' of a mutual fund scheme but is typically excluded from a simple 'NAV-to-NAV' return calculation?
AChange in the fund's expense ratio
BCapital appreciation/depreciation of the underlying assets
CDividend distributions and capital gains distributed to unitholders
DImpact of market volatility on the fund's portfolio
Q42MCQMediumTracking Error
For an index fund or Exchange Traded Fund (ETF), what does 'tracking error' primarily measure?
AThe difference between the fund's expense ratio and the index's expense ratio.
BThe deviation of the fund's returns from its underlying benchmark index returns.
CThe fund manager's ability to outperform the index through active stock selection.
DThe absolute volatility of the fund's returns over a given period, irrespective of the index.
Q43MCQMediumTreynor Ratio
When comparing two equity funds using the Treynor Ratio, which specific type of risk is predominantly being considered in the denominator of the ratio?
ATotal Risk (Standard Deviation)
BIdiosyncratic Risk (Unsystematic Risk)
CSystematic Risk (Beta)
DInflation Risk
Q44MCQEasyTypes of Returns
For a mutual fund scheme, which of the following return measures is most appropriate when evaluating performance for a period shorter than one year?
ACompounded Annual Growth Rate (CAGR)
BAnnualized Return
CAbsolute Return
DRolling Return
Q45MCQMediumUnderstanding Different Types of Returns
What is the primary advantage of analyzing a mutual fund's performance using 'rolling returns' compared to 'point-to-point' returns?
ARolling returns provide a single, definitive return figure for the entire investment period.
BRolling returns eliminate the impact of market volatility on performance.
CRolling returns offer a less biased view by averaging performance over multiple overlapping periods, reducing sensitivity to specific start and end dates.
DRolling returns are easier to calculate manually without specialized software.
About this content: These practice questions are based on the
NISM-Series-VD: Mutual Fund - Specialised Investment Fund Distributors Certification Examination Workbook
published by the National Institute of Securities Markets (NISM), Mumbai (March 2026 edition).
NISM is a SEBI-established institution. Questions cover Chapter 11: Mutual Fund Scheme Performance with verified answers and explanations.
BullWiser is an independent exam preparation platform — not affiliated with NISM, SEBI or AMFI.
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