Portfolio Performance Measurement and Evaluation
25 questions. Each answer is explained.
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Learn these topics
More units in NISM Series X-A
- Introduction to Personal Financial Planning4
- Time Value of Money14
- Evaluating the Financial Position of Clients5
- Debt Management and Loans2
- Introduction to the Indian Financial Markets4
- Securities Market Segments21
- Introduction to Investment5
- Investing in Stocks20
- Investing in Fixed Income Securities25
- Understanding Derivatives25
- Mutual Funds25
- Portfolio Manager10
- Overview of Alternative Investment Funds (AIFs)15
- Introduction to Modern Portfolio Theory14
- Portfolio Construction Process11
- Operational Aspects of Investment Management15
- Key Regulations15
- Ethical Issues15
- Grievance Redress Mechanism15
Exam format
| Questions | 135 · 1 or 2 marks each |
|---|---|
| Duration | 180 min · 3 hours |
| Pass mark | 60% · 90 of 150 marks |
| Negative marking | 25% · 0.25 or 0.5 marks off per wrong answer |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | Not published by NISM |
NISM Series X-A Investment Adviser (Level 1)
Exam rules read on NISM's site on 3 October 2026. Check the current rules on NISM's site (opens in a new tab)
What these answers assume, and when it was last checked
Each question uses the rules listed below. We last checked them on 5 September 2026. A Budget or SEBI circular can change a rate, lot size or expiry day. If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.
- NSE uses Tuesday expiry and BSE uses Thursday expiry. This applies from 1 September 2025.
- The January 2026 index lot sizes are NIFTY 65, BANKNIFTY 30, FINNIFTY 60, MIDCPNIFTY 120 and NIFTYNXT50 25.
- The October 2024 SEBI framework sets a minimum index contract value of Rs 15–20 lakh. Each exchange may list one weekly benchmark index.
- Option buyers pay the premium upfront from 1 February 2025. A short index option has an extra 2% Extreme Loss Margin on expiry day from 20 November 2024.
- Equity short-term capital gains are taxed at 20%. Long-term gains are taxed at 12.5% above Rs 1.25 lakh. Both rates apply from 23 July 2024.
- F&O income is non-speculative business income in ITR-3. NSE equity derivatives trade from 9:15 a.m. to 3:40 p.m.
- The final ten-minute session began on 3 August 2026. It aligns with the cash market Closing Auction Session.
- Most Securities Transaction Tax questions test the base and who pays. On an option sale, it is the premium and the seller pays. On a futures sale, it is the traded value and the seller pays.
- On exercise, Securities Transaction Tax uses intrinsic value: settlement price minus strike price. The buyer pays it.
- Two questions test the current rate. From 1 April 2026, option sales carry 0.15% on the premium and futures sales carry 0.05% on traded price. The earlier rates were 0.10% and 0.02% from 1 October 2024.
- This section uses the T+1 rolling settlement cycle. Obligations are fixed on T+1. A short delivery goes to buy-in auction on T+1 and settles on T+2.
- The trade-for-trade surveillance segment uses direct close-out. Funds pay in by 10:30 a.m. and pay out on or after 1:30 p.m. on settlement day.
- Securities pay in to the settlement pool by 10:30 a.m. They pay out directly to the client’s demat account by 3:30 p.m.
- The 3:30 p.m. deadline replaced 1:30 p.m. under SEBI’s 10 October 2024 circular. Direct client credit was required by SEBI’s 5 June 2024 circular.
- The optional T+0 cycle trades until 1:30 p.m. Obligations are fixed by 2:30 p.m. on the trade day. An early pay-in shortage is closed out directly.
- Cash-market Value at Risk margin is six times exponentially weighted moving-average volatility. It has a 9% floor for Group I, a 21.5% floor for Group II, and a fixed 50% or 75% level for Group III.
- Extreme Loss Margin is 3.5% for a share and 2% for a broad-market-index exchange traded fund. Mark-to-market margin is collected before the next day’s trading. The trade-for-trade segment has 100% upfront margin.
- Close-out uses the higher of the highest price from trade day to auction day and 20% above the auction day’s official close.
- A funds shortage costs 0.07% a day. The trading facility is withdrawn at a shortage of Rs 5 lakh or more.
- SCORES allows 21 calendar days, then two 15-day review levels. Online Dispute Resolution moves from conciliation to arbitration after the market participant and SCORES steps.
- At NSE, the Investor Protection Fund limit is Rs 35 lakh per investor for each defaulting or expelled member. This applies to claims arising after 13 August 2024.
- A Basic Services Demat Account has no annual maintenance charge up to Rs 4 lakh of holdings. It costs up to Rs 100 above that, until the Rs 10 lakh eligibility ceiling. These slabs apply from 1 September 2024.
- The rupee pairs are USD-INR, EUR-INR, GBP-INR and JPY-INR. The cross-currency pairs are EUR-USD, GBP-USD and USD-JPY.
- Each contract covers 1,000 units of the foreign currency, except JPY-INR. JPY-INR covers 100,000 yen and is quoted in rupees per 100 yen.
- The tick is 0.25 paise, or Rs 0.0025. It equals Rs 2.50 a contract.
- Rupee pairs trade from 9:00 a.m. to 5:00 p.m. A monthly contract stops trading at 12:30 p.m. two working days before the expiry month’s last business day.
- Final settlement is in cash at the FBIL reference rate on expiry day. FBIL, Financial Benchmarks India, has published this rate in place of the Reserve Bank since 2018. Premium-style European options are quoted in rupees. The buyer pays the premium in cash on T+1.
- Daily settlement is on T+1 and final settlement is on T+2.
- NSE Clearing circular 026/2020 sets SPAN margin plus Extreme Loss Margin. The futures margin is 0.50% for USD-INR, 0.15% for EUR-INR, 0.25% for GBP-INR and 0.35% for JPY-INR. A short option has 0.75%. These figures apply from 1 June 2020.
- A USD-INR client may hold 6% of total open interest or USD 20 million, whichever is higher. A trading member may hold 15% or USD 100 million.
- A resident user has one USD 100 million equivalent limit across all rupee pairs and exchanges. No document is needed below that limit, but a valid underlying contracted exposure must still exist. This clarification applies from 3 May 2024.
- The currency segment has no Securities Transaction Tax.
The exam figures (questions, time, pass mark, negative marking and certificate validity) come from NISM's own pages, read on 3 October 2026. Timed practice uses the same figures. Study with the official workbook as well.
The written-out answers on this page are hidden while your timed set runs.
All 25 questions on Portfolio Performance Measurement and Evaluation, with answers
Q1A portfolio is worth ₹100 lakh before an additional ₹20 lakh contribution is made immediately at the start of the measurement period. It ends the period at ₹132 lakh, with no later cash flows or distributions. What is the investment return on the capital invested throughout the period?
Option A. 20%
Why it is wrong: This reports the contribution relative to the old portfolio, not the return earned on invested funds.
Option B. 12%
Why it is wrong: This excludes the contribution from profit but still divides by the old ₹100 lakh capital base.
Option C. 10% — Correct answer
Option D. 32%
Why it is wrong: This treats the ₹20 lakh external contribution as investment profit and uses the pre-contribution base.
Answer: C. The full-period capital base is ₹120 lakh and its investment gain is ₹12 lakh, giving 10%. Opening invested capital is ₹100 lakh + ₹20 lakh = ₹120 lakh because the contribution occurs before the measurement period’s returns. With no later flows, investment gain is ₹132 lakh − ₹120 lakh = ₹12 lakh. Return = ₹12 lakh / ₹120 lakh = 10%. The timing assumption matters. A contribution made midway through the period would require a method that handles cash-flow timing rather than simply using this full-period opening base. Remember: Distinguish money added by the investor from money earned by the investments.
Hint, shown before you answer in practice mode: Common mistake: Counting external contributions as portfolio performance.
X-A-201easynumerical
Q2A portfolio’s correctly cash-flow-adjusted returns are +10% in the first subperiod and −5% in the next. What is the cumulative time-weighted return over both subperiods?
Option A. −4.5%
Why it is wrong: This reverses the sign even though the linked final value exceeds the starting value.
Option B. 4.5% — Correct answer
Option C. 2.5%
Why it is wrong: This is the arithmetic mean of the two returns, not the cumulative linked return.
Option D. 5.0%
Why it is wrong: This adds the percentage returns and omits their compounding interaction.
Answer: B. Linking growth factors gives 1.10 × 0.95 − 1 = 0.045, or 4.5%. Convert the returns to growth factors: a 10% gain is 1.10 and a 5% loss is 0.95. Their product is 1.045. A unit of capital following both returns would therefore end at 1.045 units, a cumulative gain of 4.5%. The 5% loss acts on the amount after the first gain. That interaction explains why the cumulative return differs from 10% − 5%. The question asks for a cumulative, not annualised, result. Remember: Link adjusted subperiod returns multiplicatively to obtain a cumulative time-weighted return.
Hint, shown before you answer in practice mode: Common mistake: Adding subperiod percentage returns when a compounded total is required.
X-A-202mediumnumerical
Q3An investor puts in ₹100 lakh now and another ₹100 lakh after one year, and receives ₹231 lakh after two years. What is the annual money-weighted return?
Option A. 131%
Why it is wrong: This compares the final receipt only with the initial ₹100 lakh and omits the second contribution.
Option B. 10% — Correct answer
Option C. 7.75%
Why it is wrong: This divides the simple 15.5% gain ratio by two rather than solving the dated cash-flow equation.
Option D. 15.5%
Why it is wrong: This is total gain of ₹31 lakh divided by ₹200 lakh contributions and ignores their different investment durations.
Answer: B. At 10%, the first contribution grows to ₹121 lakh and the second to ₹110 lakh, totalling ₹231 lakh. The initial ₹100 lakh is invested for two years, whereas the second ₹100 lakh is invested for one year. Test r = 0.10: 100 × 1.10² + 100 × 1.10 = 121 + 110 = 231 lakh. Thus 10% satisfies the specified equation. The equation is increasing in 1+r when r is above −100%, so this is the unique solution in the stated domain. A simple profit divided by total contributions ignores the differing durations. Remember: Date every contribution before solving for a money-weighted rate.
Hint, shown before you answer in practice mode: Common mistake: Averaging gains over years without accounting for when the money entered.
X-A-203mediumnumerical
Q4An investment earns +20% in year one and −20% in year two, with no cash flows. Its arithmetic average annual return is 0%. What is the geometric average annual return, rounded to two decimals?
Option A. +2.02%
Why it is wrong: This reverses the sign even though terminal wealth is below initial wealth.
Option B. −4.00%
Why it is wrong: This is the cumulative two-year return, not the annual geometric average.
Option C. 0.00%
Why it is wrong: This repeats the arithmetic average rather than measuring the constant compound growth rate.
Option D. −2.02% — Correct answer
Answer: D. The two-year growth factor is 1.20 × 0.80 = 0.96. Its square root minus one is approximately −2.02%. An initial ₹100 becomes ₹120 after the gain and ₹96 after the subsequent 20% loss. The two-year growth factor is therefore 0.96. The annual compound factor is √0.96, giving √0.96 − 1 = −0.020204. The geometric annual return is −2.02%. Equal positive and negative percentage returns do not cancel in wealth because the loss applies to a different starting balance. Remember: Use geometric averaging to describe multi-period wealth growth when there are no external flows.
Hint, shown before you answer in practice mode: Common mistake: Assuming equal percentage gains and losses produce zero cumulative change.
X-A-204mediumnumerical
Q5A portfolio earns 3% over one quarter. For a mathematical annualisation only, assume the same return is earned and reinvested in each of four quarters. What is the compounded annualised rate, rounded to two decimals?
Option A. 3.00%
Why it is wrong: This is the one-quarter return, not the four-quarter equivalent under the assumed repetition.
Option B. 0.75%
Why it is wrong: This divides by four rather than accumulating four quarterly periods.
Option C. 12.00%
Why it is wrong: This is the simple annual multiple and omits compounding between quarters.
Option D. 12.55% — Correct answer
Answer: D. Four quarterly growth factors give 1.03⁴ − 1, approximately 12.55%. A 3% quarterly return has growth factor 1.03. Four equal quarters imply a one-year growth factor of 1.03 raised to the fourth power. 1.03⁴ = 1.12550881. Subtract one and convert to percent to obtain 12.550881%, rounded to 12.55%. The simple annual multiple, 4 × 3% = 12%, is a different convention. The question explicitly asks for compound annualisation with reinvestment. Remember: State the annualisation convention and the number of compounding periods.
Hint, shown before you answer in practice mode: Common mistake: Presenting an annualised short-period rate as an assured future annual return.
X-A-205mediumnumerical
Q6A portfolio starts at ₹10 lakh and earns a gross 10% return over the year. A hypothetical fee of 2% of the gross closing portfolio value is then deducted. There are no other cash flows or charges. What is the investor’s net return?
Option A. 10.0%
Why it is wrong: This reports the gross investment return and ignores the fee paid by the investor.
Option B. 9.8%
Why it is wrong: This charges 2% only on the ₹1 lakh profit, contrary to the fee base specified in the question.
Option C. 7.8% — Correct answer
Option D. 8.0%
Why it is wrong: This subtracts two percentage points as if the fee were charged on opening value rather than on gross closing assets.
Answer: C. Gross closing value is ₹11 lakh. The 2% fee is ₹22,000, leaving ₹10.78 lakh and a 7.8% net gain. Gross closing assets = ₹10 lakh × 1.10 = ₹11 lakh. The closing-value-based fee is 0.02 × ₹11 lakh = ₹22,000. Net closing assets = ₹11,00,000 − ₹22,000 = ₹10,78,000. Divide the ₹78,000 net gain by the ₹10,00,000 opening value. Net return is 7.8%, equivalently 1.10 × 0.98 − 1. These are hypothetical fee terms rather than a current product charge or legal limit. Remember: Calculate net ending wealth using the actual fee base before converting to a return.
Hint, shown before you answer in practice mode: Common mistake: Subtracting headline fee and return percentages without checking their denominators.
X-A-206mediumnumerical
Q7A portfolio holds 80% in a risky asset that returns 15% during a period and 20% in cash that returns 3%. With fixed beginning weights and no flows, how much lower is portfolio return than a hypothetical 100% investment in the risky asset over the same period?
Option A. 2.4 percentage points — Correct answer
Option B. 12.6 percentage points
Why it is wrong: This is the portfolio return itself, not the difference from the fully invested comparator.
Option C. 3.0 percentage points
Why it is wrong: This treats cash as earning zero instead of including its stated 3% return.
Option D. 12.0 percentage points
Why it is wrong: This is the gap between the two asset returns before weighting the cash position.
Answer: A. Portfolio return is 12.6%, which is 2.4 percentage points below the 15% fully invested comparator. Actual portfolio return = 0.80 × 15% + 0.20 × 3% = 12% + 0.6% = 12.6%. The stated comparator earns 15%. The difference is 15% − 12.6% = 2.4 percentage points, also 0.20 × (15% − 3%). This historical scenario does not establish that holding cash was an error. Cash may serve liquidity or risk objectives, and in another period it could outperform the risky asset. Remember: Measure cash’s return contribution and opportunity difference without ignoring its portfolio purpose.
Hint, shown before you answer in practice mode: Common mistake: Treating all cash as earning zero or assuming cash must always reduce performance.
X-A-207mediumnumerical
Q8The covariance between a portfolio and the market is 0.018 and the market's variance is 0.0225. What is the portfolio's beta?
Option A. 0.80 — Correct answer
Option B. 1.25
Why it is wrong: This reverses the numerator and denominator.
Option C. 0.12
Why it is wrong: This divides covariance by market standard deviation rather than market variance.
Option D. 0.018
Why it is wrong: This reports covariance without standardising by the market’s variance.
Answer: A. 0.018 divided by 0.0225 equals 0.80. The squared-return units cancel. Use the stipulated formula β = Cov(portfolio, market) / Var(market), keeping the same observation period and return units. β = 0.018 / 0.0225 = 0.80. Since numerator and denominator have the same squared-return units, beta is dimensionless. A beta of 0.80 describes the estimated relationship to this benchmark. It does not mean every market move produces exactly an 80%-as-large portfolio move, nor does it eliminate company-specific variation. Remember: Match beta’s covariance and variance inputs to the same benchmark, period and units.
Hint, shown before you answer in practice mode: Common mistake: Confusing market sensitivity with total standard deviation or a guaranteed movement ratio.
X-A-208mediumnumerical
Q9The risk-free rate is 5%, the expected market return is 11% and a portfolio's beta is 1.2. What is its required return under CAPM?
Option A. 11.0%
Why it is wrong: This uses the market return directly, ignoring the specified beta of 1.2.
Option B. 7.2%
Why it is wrong: This is the beta-adjusted market premium alone and omits the risk-free component.
Option C. 12.2% — Correct answer
Option D. 18.2%
Why it is wrong: This multiplies beta by the full market return rather than only the market risk premium.
Answer: C. The market premium is 6%. Multiply it by 1.2 and then add the 5% risk-free component. Market risk premium = 11% − 5% = 6 percentage points. This is the expected compensation above the risk-free component. Beta-adjusted premium = 1.2 × 6% = 7.2%. Add the 5% risk-free rate to obtain 12.2%. This is a result conditional on the supplied model and hypothetical inputs. It is not a promise about realised performance or a statement of the current risk-free rate in India. Remember: Subtract the risk-free rate before multiplying the market premium by beta.
Hint, shown before you answer in practice mode: Common mistake: Scaling the full market return and then adding the risk-free rate again.
X-A-209mediumnumerical
Q10A portfolio returned 14% in a year. The risk-free rate was 5%, the market returned 11% and the portfolio's beta is 1.2. What is its Jensen's alpha?
Option A. +1.8 percentage points — Correct answer
Option B. +3.0 percentage points
Why it is wrong: This subtracts the 11% market return without adjusting for the portfolio’s beta and risk-free component.
Option C. −1.8 percentage points
Why it is wrong: This reverses the subtraction even though the portfolio return exceeds its model comparison.
Option D. +9.0 percentage points
Why it is wrong: This subtracts only the 5% risk-free rate, producing raw excess return rather than the specified alpha.
Answer: A. The model return is 12.2%, so the excess over it is 14% − 12.2% = 1.8 percentage points. Calculate the comparison first: 5% + 1.2 × 6% = 12.2%. This uses the same annual period as the portfolio return. Subtract the comparison from actual return: 14% − 12.2% = +1.8 percentage points. Positive measured alpha for this year does not prove persistent manager skill. Model choice, estimation uncertainty, costs and chance can affect the interpretation. The question asks only for this specified difference. Remember: Name the model and return basis before interpreting an alpha number.
Hint, shown before you answer in practice mode: Common mistake: Treating every outperformance figure as the same type of alpha.
X-A-210mediumnumerical
Q11A portfolio's mean return is 14%, the risk-free rate is 6% and its standard deviation is 20%. What is its Sharpe ratio?
Option A. 0.40 — Correct answer
Option B. 2.50
Why it is wrong: This reverses the ratio by dividing volatility by excess return.
Option C. 8.00
Why it is wrong: This reports the excess return in percentage points rather than adjusting for standard deviation.
Option D. 0.70
Why it is wrong: This divides raw portfolio return by volatility and omits the risk-free-rate subtraction.
Answer: A. The 8-percentage-point excess mean return divided by 20% standard deviation gives 0.40. Annual excess mean return = 14% − 6% = 8%. The annual standard deviation is 20%. Sharpe ratio = 0.08 / 0.20 = 0.40. Using 8/20 also works because both numbers are in percentage-point units. The result is a dimensionless ratio, not a 40% investment return. Comparing it with other ratios requires consistent return definitions, observation periods and risk-free assumptions. Remember: Subtract the risk-free return and match units before dividing by total volatility.
Hint, shown before you answer in practice mode: Common mistake: Using raw return instead of excess return, or calling the resulting ratio a percentage profit.
X-A-211mediumnumerical
Q12A portfolio's mean return is 14%, the risk-free rate is 6% and its beta is 1.25. What is its Treynor ratio, in percentage points per unit of beta?
Option A. 10.0 percentage points per unit of beta
Why it is wrong: This multiplies excess return by beta instead of dividing by it.
Option B. 8.0 percentage points per unit of beta
Why it is wrong: This reports excess return without adjusting for the stated beta.
Option C. 6.4 percentage points per unit of beta — Correct answer
Option D. 11.2 percentage points per unit of beta
Why it is wrong: This divides the raw 14% return by beta and fails to subtract the risk-free rate.
Answer: C. The annual excess mean return is 8 percentage points. Dividing by 1.25 gives 6.4. Treynor ratio = 8 / 1.25 = 6.4 percentage points per unit of beta, equivalently 0.064 when returns are entered as decimals. The positive beta makes this straightforward calculation interpretable as specified. A beta-based measure does not by itself describe all portfolio risks, and unusual or unstable beta values require care. Remember: Identify whether a risk-adjusted measure uses total volatility, beta or another risk denominator.
Hint, shown before you answer in practice mode: Common mistake: Interchanging beta and standard deviation because both are called risk measures.
X-A-212mediumnumerical
Q13A portfolio's mean return is 12%. The minimum acceptable return is 5% and the downside deviation is 7%. What is its Sortino ratio?
Option A. 0.58
Why it is wrong: This divides downside deviation by the raw portfolio return, reversing and redefining the measure.
Option B. 1.71
Why it is wrong: This divides the full 12% return by downside deviation and omits the 5% target subtraction.
Option C. 1.00 — Correct answer
Option D. 7.00
Why it is wrong: This is the numerator in percentage points, not the risk-adjusted ratio.
Answer: C. The return above the chosen target is 7%. Dividing by the matching 7% downside deviation gives 1.00. The minimum acceptable return is explicitly 5%. Mean return above it is 12% − 5% = 7%. Downside deviation is supplied as 7%, already calculated relative to the same annual target. The ratio is therefore 0.07 / 0.07 = 1.00. No separate downside-deviation convention needs to be invented because the statistic is given. Comparisons still require compatible targets, periods and calculation methods. The ratio is not a guaranteed future outcome. Remember: Use the same target in both the excess-return numerator and downside-risk measurement.
Hint, shown before you answer in practice mode: Common mistake: Replacing the specified minimum acceptable return with a different rate without justification.
X-A-213mediumnumerical
Q14Quarterly active returns are +2, 0, −2 and 0 percentage points. Using the sample standard deviation (n − 1), what is the quarterly tracking error, to two decimals?
Option A. 2.83 percentage points
Why it is wrong: This takes the square root of the sum of squared deviations without dividing by n−1.
Option B. 1.63 percentage points — Correct answer
Option C. 0.00 percentage points
Why it is wrong: A zero average active return does not imply that individual active returns have no variability.
Option D. 1.41 percentage points
Why it is wrong: This uses population denominator 4 instead of the explicitly requested sample denominator 3.
Answer: B. Mean active return is zero, and √[(4 + 0 + 4 + 0)/3] is approximately 1.63. The four active returns sum to zero, so their sample mean is zero percentage points. Squared deviations are 4, 0, 4 and 0 in squared percentage-point units. Sample variance = 8/(4−1) = 8/3. The square root is 1.632993 percentage points, rounded to 1.63. The question requests quarterly tracking error, so do not multiply by a square-root-of-four annualisation factor. Remember: Separate average active return from the dispersion of active returns, and use the requested frequency.
Hint, shown before you answer in practice mode: Common mistake: Calling tracking error zero just because average outperformance is zero.
X-A-214mediumnumerical
Q15A portfolio's mean return is 11%, its benchmark's is 8% and the tracking error is 4%. What is its information ratio?
Option A. −0.75
Why it is wrong: This subtracts portfolio return from benchmark return, reversing the stated numerator.
Option B. 0.75 — Correct answer
Option C. 1.33
Why it is wrong: This reverses the ratio by dividing tracking error by mean active return.
Option D. 2.75
Why it is wrong: This divides raw portfolio return by tracking error and fails to subtract benchmark return.
Answer: B. Mean active return is 3%. Dividing by the 4% tracking error gives 0.75. Mean active return is 11% − 8% = 3 percentage points using matching annual return measures. Divide by annual tracking error: 0.03/0.04 = 0.75. The numerator and denominator share return units, giving a dimensionless ratio. A risk-free rate is not needed for this stated formula. The selected benchmark and consistent measurement conventions matter, and the historical result does not ensure future outperformance. Remember: Match each performance ratio with its own return comparison and risk denominator.
Hint, shown before you answer in practice mode: Common mistake: Substituting risk-free excess return or total volatility into an information-ratio calculation.
X-A-215mediumnumerical
Q16A portfolio returns 14% with a standard deviation of 20%. The risk-free rate is 4% and the benchmark's standard deviation is 12%. What is the portfolio's M² risk-adjusted return, as a return level?
Option A. 14%
Why it is wrong: This is the original portfolio return before normalising the level of volatility.
Option B. 10% — Correct answer
Option C. 16%
Why it is wrong: This adds benchmark volatility to the risk-free rate without scaling by the portfolio’s Sharpe ratio.
Option D. 6%
Why it is wrong: This is the normalised excess-over-risk-free component, not the full return level requested.
Answer: B. The portfolio Sharpe ratio is 0.50. Scaling it by 12% gives 6% excess return, then adding 4% gives 10%. Portfolio excess return is 14% − 4% = 10%. Dividing by 20% standard deviation gives a Sharpe ratio of 0.50. Normalised excess return = 0.50 × 12% = 6%. Add the 4% risk-free component to obtain a 10% return level. A difference from benchmark return would require subtracting that separate return, which is neither requested nor supplied. Keep the normalised return level and any benchmark-relative spread distinct. Remember: State whether M² means a normalised return level or a difference from a benchmark before calculating.
Hint, shown before you answer in practice mode: Common mistake: Reporting only the excess-return component when the requested measure includes the risk-free rate.
X-A-216mediumnumerical
Q17A portfolio’s reported return includes investment income. Its manager compares it with a price-only index that excludes dividends, then attributes the entire difference to security-selection skill. What should be corrected before accepting that attribution?
Option A. Assume every difference from a price index is automatically manager alpha
Why it is wrong: A convention mismatch can contribute to the difference, so it cannot all be assigned to selection skill.
Option B. Compare the portfolio with the lowest-return index available
Why it is wrong: Selecting a benchmark to maximise apparent outperformance does not provide a relevant performance comparison.
Option C. Use a suitably matched total-return benchmark and consistent return conventions — Correct answer
Option D. Remove income only from the portfolio and keep every other mismatch unchecked
Why it is wrong: That may align one feature but does not establish that the benchmark otherwise matches the mandate and methodology.
Answer: C. The current comparison mixes an income-inclusive portfolio return with an index that omits income. Identify the inconsistent treatment of income: the portfolio includes it, while the chosen index excludes dividends. A suitably matched total-return index can address this feature, alongside checks on asset universe, currency, period, fees and other relevant conventions. Even a corrected active-return difference is not automatically pure selection skill. Allocation, risk exposures, costs and chance may also contribute and require separate analysis. Remember: Align the return basis before interpreting benchmark outperformance.
Hint, shown before you answer in practice mode: Common mistake: Crediting a manager with skill for a difference partly caused by inconsistent income treatment.
X-A-217mediumconceptual
Q18A hypothetical five-fund peer group has annual returns of 12%, 10%, 8%, −5% and −10%. A database drops the last two funds after they close and reports the equally weighted average of only the remaining three. By how many percentage points does this raise the reported average compared with retaining all five?
Option A. 7 percentage points — Correct answer
Option B. 15 percentage points
Why it is wrong: This is the sum of all five returns, not the difference between the two equally weighted means.
Option C. 3 percentage points
Why it is wrong: This is the original five-fund mean, not the increase caused by dropping the two funds.
Option D. 10 percentage points
Why it is wrong: This is the surviving-fund mean itself, not its difference from the original mean.
Answer: A. The full group averages 3%, while the retained three average 10%, creating a 7-point increase. Average for all five = (12 + 10 + 8 − 5 − 10)/5 = 15/5 = 3%. Average for the three survivors = (12 + 10 + 8)/3 = 30/3 = 10%. The reported increase is 10% − 3% = 7 percentage points. The numerical direction follows from these stated omitted returns. The lesson is to define the comparison universe consistently, not to assume that every fund closure has the same cause or performance effect. Remember: Keep the original eligible universe in view when interpreting a peer-group performance average.
Hint, shown before you answer in practice mode: Common mistake: Comparing only surviving products and treating that subset as the full historical investment opportunity.
X-A-218mediumnumerical
Q19A portfolio holds 60% equity and 40% debt. Its benchmark holds 50% of each. Benchmark returns are 12% for equity and 4% for debt. What is the allocation effect?
Option A. +1.6 percentage points
Why it is wrong: This doubles the correct weighted effect rather than following the stated sum.
Option B. +8.0 percentage points
Why it is wrong: This is the equity-minus-debt return spread before multiplying by the 10-percentage-point allocation shift.
Option C. −0.8 percentage points
Why it is wrong: This reverses portfolio-minus-benchmark weights and therefore reverses the effect’s sign.
Option D. +0.8 percentage points — Correct answer
Answer: D. The equity overweight contributes +1.2 points and the debt underweight contributes −0.4 points, for +0.8. Equity weight difference = 0.60 − 0.50 = +0.10. Its contribution is 0.10 × 12% = +1.2 percentage points. Debt difference = 0.40 − 0.50 = −0.10. Its contribution is −0.10 × 4% = −0.4 percentage points. Sum = +0.8. This measures only the defined allocation component. It does not include the portfolio’s within-segment selection results or establish the manager’s total active return without further information. Remember: Use the attribution formula supplied and distinguish allocation effects from security-selection effects.
Hint, shown before you answer in practice mode: Common mistake: Reporting the raw segment return spread without applying the difference in portfolio weights.
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Q20A benchmark holds 60% equity and 40% debt. The portfolio's equity and debt returned 15% and 5%, against benchmark returns of 12% and 4%. What is the selection effect?
Option A. +2.2 percentage points — Correct answer
Option B. +3.0 percentage points
Why it is wrong: This reports only the unweighted equity segment excess return.
Option C. +4.0 percentage points
Why it is wrong: This adds both segment differences without weighting them.
Option D. +2.0 percentage points
Why it is wrong: This equally averages the 3% and 1% segment differences instead of using the benchmark’s 60/40 weights.
Answer: A. The equity contribution is 0.60 × 3% = 1.8 points and the debt contribution is 0.40 × 1% = 0.4 points. Equity segment difference = 15% − 12% = 3%. Weighting by 60% gives 1.8 percentage points. Debt segment difference = 5% − 4% = 1%. Weighting by 40% gives 0.4 percentage points. Together they give 2.2 percentage points. Other attribution conventions may separate interaction differently. This answer applies only the explicit formula. It does not assume that selection alone equals all of the portfolio’s benchmark-relative performance. Remember: Keep segment returns, segment excess returns and the specified attribution weights separate.
Hint, shown before you answer in practice mode: Common mistake: Adding within-segment excess returns without weighting them by the stated exposure basis.
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Q21CASE: An investor puts in ₹100 lakh. After one year it is worth ₹120 lakh, and the investor adds ₹80 lakh. After the second year the portfolio is worth ₹180 lakh. What is the two-year time-weighted return?
Option A. +80%
Why it is wrong: 80% treats the added ₹80 lakh as profit.
Option B. +8% — Correct answer
Option C. 0%
Why it is wrong: 0% is the money-weighted result, not the time-weighted one.
Option D. +10%
Why it is wrong: 10% adds +20% and −10% instead of compounding them.
Answer: B. Year one: 120 ÷ 100 = +20%. Year two: 180 ÷ 200 = −10%. 1.20 × 0.90 = 1.08, so the return is +8%. Remember: Measure each subperiod on the capital present during that subperiod before linking its return.
Hint, shown before you answer in practice mode: Common mistake: Using a portfolio value after a contribution as if it were all investment growth.
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Q22CASE: A portfolio returns +20% in year one and −10% in year two. What is its annualised time-weighted return?
Option A. +8.00% per year
Why it is wrong: 8% is the two-year total, not a yearly rate.
Option B. +5.00% per year
Why it is wrong: 5% is the simple average of +20% and −10%.
Option C. +3.92% per year — Correct answer
Option D. +4.00% per year
Why it is wrong: 4% halves the 8% total without compounding.
Answer: C. Two-year factor = 1.20 × 0.90 = 1.08. Annual = √1.08 − 1 = 3.92%. Remember: Annualise a multi-year linked return with a root of its growth factor.
Hint, shown before you answer in practice mode: Common mistake: Dividing a cumulative compound return by the number of years.
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Q23CASE: An investor puts in ₹100 lakh, adds ₹80 lakh after one year and takes out ₹180 lakh after two years. What is the annual money-weighted return?
Option A. 8.00%
Why it is wrong: 8% is a two-year time-weighted figure, not the money-weighted rate.
Option B. 3.92%
Why it is wrong: 3.92% is an annualised time-weighted figure.
Option C. 5.00%
Why it is wrong: 5% does not fit the cash flows. ₹180 lakh out equals ₹180 lakh in.
Option D. 0% — Correct answer
Answer: D. The investor put in ₹180 lakh and got back exactly ₹180 lakh, so the money-weighted return is 0%. Check: 100 × 1² + 80 × 1 = 180. Remember: Use amounts and dates, not just yearly percentage returns, to evaluate the investor’s money-weighted experience.
Hint, shown before you answer in practice mode: Common mistake: Assuming TWR and MWR must coincide even when there is a substantial interim contribution.
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Q24CASE: An investor's ₹100 lakh grows to ₹120 lakh in year one. The investor adds ₹80 lakh, and the ₹200 lakh then falls to ₹180 lakh in year two. The time-weighted return is +8% but the money-weighted return is 0%. Which explanation is best?
Option A. The two return methods must always agree, so one of the two figures is wrong
Why it is wrong: Different weighting of dated capital and subperiod returns can legitimately produce different measures.
Option B. The ₹80 lakh contribution is an investment loss that must be deducted from TWR
Why it is wrong: An external contribution is not an investment loss. TWR excludes its direct effect through subperiod measurement.
Option C. The final ₹180 lakh against the first ₹100 lakh shows an 80% investment profit
Why it is wrong: That comparison omits the ₹80 lakh later contributed and wrongly treats added capital as earned profit.
Option D. The ₹20 lakh loss came when more money was invested, cancelling the ₹20 lakh gain — Correct answer
Answer: D. Year one gained ₹20 lakh on ₹100 lakh. Year two lost ₹20 lakh on ₹200 lakh. Time-weighting counts each year equally. Money-weighting counts how much money was in. Remember: Different capital amounts can make the same sequence of percentage returns produce a different investor experience.
Hint, shown before you answer in practice mode: Common mistake: Concluding that a legitimate TWR–MWR difference proves an error or manager misconduct.
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Q25CASE: A portfolio's two-year time-weighted return is +8%. A benchmark earns 4% in each of the two years, reinvested. What is the portfolio's cumulative return minus the benchmark's?
Option A. +0.16 percentage points
Why it is wrong: This reverses the subtraction.
Option B. −4.00 percentage points
Why it is wrong: −4 points mixes unlike measures.
Option C. 0.00 percentage points
Why it is wrong: This adds 4% + 4% instead of compounding.
Option D. −0.16 percentage points — Correct answer
Answer: D. Benchmark = 1.04² − 1 = 8.16%. Portfolio minus benchmark = 8% − 8.16% = −0.16 percentage points. Remember: Align horizons and return methods, then distinguish a percentage-point spread from a relative-wealth ratio.
Hint, shown before you answer in practice mode: Common mistake: Comparing cumulative, annualised and money-weighted results as though they were interchangeable.
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Portfolio Performance Measurement and Evaluation: common questions
How many practice questions are there on Portfolio Performance Measurement and Evaluation?
25 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 20 practice topics for NISM Series X-A, which has 285 questions in total.
Are these real NISM Series X-A questions on Portfolio Performance Measurement and Evaluation?
No. LearnNifty wrote every question from NISM's public syllabus. NISM does not publish its question bank, so nobody can offer you the real paper. Use these questions to check that an idea has gone in. Use the official NISM workbook to see what is examined.
Does negative marking apply to NISM Series X-A?
Yes. NISM takes off 25% of a question's marks for a wrong answer. On a 1 or 2-mark question that is 0.25 or 0.5 marks off. A blank question earns nothing and loses nothing, so a wrong guess costs marks on this paper. Timed practice here uses the same rule.
Are these practice questions kept up to date?
Each question is written against the rules printed on this page, last checked on 5 September 2026. A Budget or a SEBI circular can change a rate, a lot size or an expiry day. If one of those rules changes before your exam, treat the questions that use it as out of date. Then check NISM's current workbook.
Operational Aspects of Investment Management
15 questions on Operational Aspects of Investment Management. Its quiz opens on that unit.
Open Operational Aspects of Investment Management