Performance measurement and evaluation of Portfolio Managers
8 questions. Each answer is explained.
Question 1 of 8Practice · Series XXI-B — Portfolio Managers
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Learn these topics
More units in NISM Series XXI-B
- Investment Landscape and Required Return4
- Introduction to Securities Markets and Participants3
- Investing in Stocks and Equity Research7
- Investing in Fixed Income Securities and Bond Valuation6
- Derivatives in Portfolio Management6
- Mutual Fund6
- Role of Portfolio Managers in India8
- Operational Aspects of Portfolio Managers (Onboarding and Fees)8
- Portfolio Management Process and Asset Allocation8
- Taxation6
- Regulatory, Governance and Ethical Aspects of Portfolio Managers8
- Introduction to Indices6
- Concept of Informational Efficiency6
- Behavioral Finance6
- Introduction to Modern Portfolio Theory6
- Introduction to Capital Market Theory6
- Risk8
- Equity Portfolio Management Strategies14
- Fixed Income Portfolio Management Strategies14
- Portfolio Rebalancing6
Exam format
| Questions | 120 · 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 XXI-B Portfolio Managers
Exam rules read on NISM's site on 30 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 30 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 8 questions on Performance measurement and evaluation of Portfolio Managers, with answers
Q1Which return measure neutralises client-controlled external cash-flow timing when evaluating the manager’s investment performance?
Option A. The total rupee gain alone
Why it is wrong: An absolute gain does not separate performance from invested amounts and cash-flow timing.
Option B. Money-weighted return
Why it is wrong: Money-weighted return reflects the size and timing of external cash flows.
Option C. Time-weighted return — Correct answer
Option D. The closing portfolio value alone
Why it is wrong: Closing value reflects contributions and withdrawals as well as investment performance.
Answer: C. Time-weighted return links subperiod returns around external cash flows so their timing does not drive the performance measure. Money-weighted return instead reflects the investor’s cash-flow experience. Remember: The choice of return measure should reflect who controls external cash flows.
Hint, shown before you answer in practice mode: Consider a measure that links returns between external cash-flow events. Common mistake: Using total rupee profit to compare managers handling different contribution schedules.
XXI-B-137easyconceptual
Q2What is a central aim of the Global Investment Performance Standards?
Option A. Identical holdings across all managers reporting performance
Why it is wrong: Comparable performance reporting does not require managers to hold identical portfolios.
Option B. Approval of every individual trade by a global regulator
Why it is wrong: The standards do not create a global regulator approving each transaction.
Option C. Fair representation and full disclosure of investment performance — Correct answer
Option D. A guaranteed positive return for every compliant portfolio
Why it is wrong: Performance-reporting standards do not guarantee investment gains.
Answer: C. The standards promote fair representation and full disclosure of investment performance. They should not be described as a guarantee of returns or investment suitability. Remember: Performance standards improve reporting discipline rather than assure future investment success.
Hint, shown before you answer in practice mode: Separate standards for reporting results from promises about the results themselves. Common mistake: Treating a standards claim as proof that a portfolio cannot lose money.
XXI-B-138easyconceptual
Q3A portfolio gains 20% in year one and loses 20% in year two, with no cash flows. What is its geometric annual return?
Option A. Approximately −2.02% — Correct answer
Option B. 0.00%
Why it is wrong: This is the arithmetic average and ignores compounding.
Option C. Approximately 2.02%
Why it is wrong: This reverses the sign despite ending below the starting value.
Option D. −4.00%
Why it is wrong: This is the total two-year return rather than its annual geometric rate.
Answer: A. The geometric annual return is approximately −2.02% because wealth ends at 96% of its starting value. Two-year growth factor = 1.20 × 0.80 = 0.96. Annual geometric return = √0.96 − 1 = −0.020204, or about −2.02%. Remember: Equal percentage gains and losses do not cancel when compounded.
Hint, shown before you answer in practice mode: Find the ending wealth factor before converting it to a constant annual rate. Common mistake: Using the arithmetic average to describe multi-year wealth growth.
XXI-B-139mediumnumerical
Q4A performance review uses annual portfolio return of 14%, risk-free return of 5% and portfolio standard deviation of 18%. The measures cover the same period and use the same frequency. What is the Sharpe ratio?
Option A. 2.00
Why it is wrong: This reverses the ratio of excess return to standard deviation.
Option B. 0.50 — Correct answer
Option C. 0.78
Why it is wrong: This divides total return by volatility instead of using excess return.
Option D. 1.80
Why it is wrong: This uses the risk-free rate as a denominator rather than portfolio standard deviation.
Answer: B. The Sharpe ratio is 0.50 because the 9% excess return is half the 18% standard deviation. Working: (14% − 5%) ÷ 18% = 9% ÷ 18% = 0.50. Remember: Sharpe measures excess return per unit of total return volatility.
Hint, shown before you answer in practice mode: Identify the return above the baseline and the measure of total volatility. Common mistake: Using total return rather than excess return in the numerator.
XXI-B-140mediumapplication
Q5The same performance review records annual return of 14%, risk-free return of 5% and portfolio beta of 1.2. All inputs are measured consistently. What is the Treynor measure, expressed as return per unit of beta?
Option A. 11.67%
Why it is wrong: This divides total return by beta instead of subtracting the risk-free return first.
Option B. 10.80%
Why it is wrong: This multiplies excess return by beta instead of dividing by it.
Option C. 9.00%
Why it is wrong: This is the excess return before dividing by beta.
Option D. 7.50% — Correct answer
Answer: D. The Treynor measure is 7.50% per unit of beta because the excess return is 9%. Working: (14% − 5%) ÷ 1.2 = 7.50%. Remember: Treynor and Sharpe use different risk denominators.
Hint, shown before you answer in practice mode: Use systematic market sensitivity rather than total portfolio volatility. Common mistake: Replacing beta with standard deviation or multiplying by beta.
XXI-B-141mediumapplication
Q6The performance review reports portfolio return of 14% and benchmark return of 11%. Tracking error, the standard deviation of active returns, is 3% on the same annual basis. What is the information ratio?
Option A. 0.50
Why it is wrong: This does not divide the stated 3% active return by the stated 3% tracking error.
Option B. 1.00 — Correct answer
Option C. 4.67
Why it is wrong: This divides total portfolio return by tracking error rather than active return.
Option D. 3.00
Why it is wrong: This is the active-return percentage without the required risk adjustment.
Answer: B. The information ratio is 1.00 because the 3% active return equals the 3% tracking error. Working: (14% − 11%) ÷ 3% = 1.00. Remember: The information ratio compares benchmark-relative return with benchmark-relative risk.
Hint, shown before you answer in practice mode: Use the benchmark difference and the variability of that difference. Common mistake: Using the risk-free rate or total portfolio return in place of benchmark-relative return.
XXI-B-142mediumapplication
Q7The performance review records portfolio return of 14%, benchmark market return of 11%, risk-free return of 5% and beta of 1.2. Treat the benchmark as the market proxy for the stated capital asset pricing model. What is Jensen’s alpha?
Option A. −0.40 percentage points
Why it is wrong: This does not correctly apply beta to the market return above the risk-free rate.
Option B. 9.00 percentage points
Why it is wrong: This subtracts only the risk-free return and ignores the market-risk premium.
Option C. 1.80 percentage points — Correct answer
Option D. 3.00 percentage points
Why it is wrong: This is raw benchmark outperformance without adjusting for the portfolio’s beta.
Answer: C. Jensen’s alpha is 1.80 percentage points because the portfolio exceeds its 12.20% model-required return. Market premium = 11% − 5% = 6%. Required return = 5% + 1.2 × 6% = 12.20%. Alpha = 14% − 12.20% = 1.80 percentage points. Remember: Jensen’s alpha adjusts the return comparison for systematic market exposure.
Hint, shown before you answer in practice mode: Find the model-required return at this beta before evaluating the residual. Common mistake: Calling raw outperformance over the market the same thing as beta-adjusted alpha.
XXI-B-143hardapplication
Q8The review shows portfolio return of 14%, risk-free return of 5%, portfolio volatility of 18% and benchmark volatility of 12%. Use the same period and assume risk-free mixing is feasible. What is the M² risk-adjusted return level, not its difference from benchmark return?
Option A. 11.00% — Correct answer
Option B. 18.50%
Why it is wrong: This scales risk in the wrong direction because benchmark volatility is lower.
Option C. 14.00%
Why it is wrong: This is the original portfolio return before scaling its higher volatility.
Option D. 6.00%
Why it is wrong: This is the volatility-scaled excess return before adding the risk-free return.
Answer: A. The M² adjusted return level is 11.00% because the portfolio’s excess return is scaled down to benchmark volatility. Excess return = 14% − 5% = 9%. Volatility ratio = 12% ÷ 18% = 2/3. Adjusted return = 5% + 9% × 2/3 = 11%. This answer is the adjusted return level, not the benchmark-relative M² difference. Remember: State whether M² refers to an adjusted return level or its benchmark-relative difference.
Hint, shown before you answer in practice mode: Scale the portfolio’s excess return to benchmark volatility, then restore the baseline. Common mistake: Reversing the volatility ratio or omitting the risk-free component.
XXI-B-144hardapplication
Performance measurement and evaluation of Portfolio Managers: common questions
How many practice questions are there on Performance measurement and evaluation of Portfolio Managers?
8 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 21 practice topics for NISM Series XXI-B, which has 150 questions in total.
Are these real NISM Series XXI-B questions on Performance measurement and evaluation of Portfolio Managers?
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 XXI-B?
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.
Portfolio Rebalancing
6 questions on Portfolio Rebalancing. Its quiz opens on that unit.
Open Portfolio RebalancingPaper Trading Try it on the practice trading desk