Risk, Return and Performance of Funds
5 questions. Each answer is explained.
Question 1 of 5Practice · Series V-D — Mutual Fund - Specialized Investment Fund Distributors
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Learn these topics
More units in NISM Series V-D
- The Investment Landscape5
- Concept & Role of a Mutual Fund4
- Legal Structure of Mutual Funds in India3
- Legal and Regulatory Framework7
- Scheme Related Information7
- Fund Distribution and Channel Management Practices4
- Net Asset Value, Total Expense Ratio and Pricing of Units5
- Taxation3
- Investor Services10
- Mutual Fund Scheme Performance5
- Mutual Fund Scheme Selection10
- Basics of Derivatives10
- Understanding Index5
- Introduction to Forwards and Futures15
- Introduction to Options13
- Strategies Using Equity Futures and Equity Options9
- Introduction to Interest Rate, Interest Rate Instruments and Fixed Income Markets6
- Interest Rate Derivatives2
- Exchange Traded Interest Rate Futures10
- Exchange Traded Interest Rate Options6
- Strategies Using Interest Rate Derivatives6
Exam format
| Questions | 150 · 1 mark each |
|---|---|
| Duration | 180 min · 3 hours |
| Pass mark | 60% · 90 of 150 marks |
| Negative marking | 10% · 0.1 marks off per wrong answer |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | 5 of 150 marks (3.3%) |
Source: July 2026 Annexure I, Chapter 10: Risk, Return and Performance of Funds
NISM Series V-D Mutual Fund - Specialized Investment Fund Distributors
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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 5 questions on Risk, Return and Performance of Funds, with answers
Q1A unit is purchased at ₹20 and sold one year later at ₹22. The investor also receives a ₹1 cash distribution during the year, which is not reinvested. Ignore taxes and charges. What is the holding-period total return? Assumptions: One unit is held for the whole period. The distribution is not reinvested.
Option A. 10%
Why it is wrong: This includes only NAV appreciation and omits the cash distribution.
Option B. 5%
Why it is wrong: This includes only the distribution yield and omits NAV appreciation.
Option C. 65%
Why it is wrong: This does not measure profit relative to the original ₹20 cost correctly.
Option D. 15% — Correct answer
Answer: D. Total gain is ₹22 − ₹20 + ₹1 = ₹3. Dividing by the initial ₹20 gives 15%. Remember: Total return includes distributed cash as well as price or NAV changes.
Hint, shown before you answer in practice mode: Include both the change in unit value and the cash received.
V-D-049mediumnumerical
Q2A lump-sum investment rises from ₹1,00,000 to ₹1,33,100 in exactly three years with no intermediate cash flows. What is its compound annual growth rate? Assumptions: No contributions, withdrawals or distributions occur.
Option A. 33.10%
Why it is wrong: This is the three-year total return, not an annual rate.
Option B. 11.03%
Why it is wrong: This divides the total 33.1% gain by three instead of compounding.
Option C. 9.00%
Why it is wrong: Compounding 9% for three years does not produce the stated ending value.
Option D. 10% — Correct answer
Answer: D. CAGR = (1,33,100/1,00,000)^(1/3) − 1 = 10%. A 1.10 factor applied for three years produces 1.331. Remember: CAGR converts a multi-year growth factor into an equivalent compound annual rate.
Hint, shown before you answer in practice mode: Find the annual growth factor whose cube equals 1.331.
V-D-050mediumnumerical
Q3A debt portfolio has modified duration of 4.0. Using the first-order approximation and ignoring convexity, what is the estimated percentage price change for a parallel yield rise of 0.50 percentage points? Assumptions: The yield shift is parallel. Modified duration stays constant and convexity is ignored.
Option A. −2.00% — Correct answer
Option B. +2.00%
Why it is wrong: This reverses the usual price effect of a yield rise for the stated positive-duration portfolio.
Option C. −200.00%
Why it is wrong: This treats 0.50 percentage points as 0.50 in decimal yield instead of 0.005.
Option D. −0.20%
Why it is wrong: This understates the yield change by a factor of ten.
Answer: A. The decimal yield change is 0.005. Estimated price change = −4.0 × 0.005 × 100 = −2.00%. This is a first-order estimate rather than an exact valuation. Remember: Keep basis points, percentage points and decimal yields consistent.
Hint, shown before you answer in practice mode: Percentage price change is approximately minus modified duration times the decimal yield change.
V-D-051mediumnumerical
Q4What does a fund’s beta primarily describe in relation to a chosen market benchmark?
Option A. The sensitivity of the fund’s returns to movements in that benchmark — Correct answer
Option B. The dispersion of the fund’s returns around its own average
Why it is wrong: That describes total return variability, commonly measured by standard deviation.
Option C. The fund’s excess return divided by its total volatility
Why it is wrong: That describes a Sharpe-ratio calculation, not beta itself.
Option D. The standard deviation of the fund’s return differences from an index
Why it is wrong: That describes tracking error, not benchmark sensitivity.
Answer: A. Beta estimates how the fund’s returns move with the selected benchmark. It is distinct from standard deviation, which measures the variability of the fund’s own returns. Remember: A risk statistic must be interpreted according to what it measures.
Hint, shown before you answer in practice mode: Beta links the fund’s returns to a market return series.
V-D-052easyconceptual
Q5A teaching example has three equally weighted annual returns: −10%, 10% and 30%. Use population standard deviation: the square root of the average squared deviation from the mean. What is the standard deviation, rounded to two decimals? Assumptions: Use population standard deviation and equally weighted observations, as explicitly stated.
Option A. 16.33 percentage points — Correct answer
Option B. 10.00 percentage points
Why it is wrong: This is the mean return, not the standard deviation.
Option C. 20.00 percentage points
Why it is wrong: This is the distance of either extreme from the mean, not the square root of all three average squared deviations.
Option D. 26.67 percentage points
Why it is wrong: This is not the square root of the correctly calculated average squared deviation.
Answer: A. Population variance = (400 + 0 + 400)/3 = 266.6667 squared percentage points. Its square root is 16.33 percentage points. The supplied population convention avoids confusing the result with sample standard deviation. Remember: State the statistical convention and distinguish average return from variability.
Hint, shown before you answer in practice mode: The mean is 10%. Deviations are −20, 0 and +20 percentage points.
V-D-053hardnumerical
Risk, Return and Performance of Funds: common questions
How many practice questions are there on Risk, Return and Performance of Funds?
5 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 22 practice topics for NISM Series V-D, which has 150 questions in total.
Are these real NISM Series V-D questions on Risk, Return and Performance of Funds?
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.
How much of the NISM Series V-D exam is Risk, Return and Performance of Funds?
NISM's published syllabus outline gives it 5 of the paper's 150 marks, or 3.3% of the exam. It is quoted from the outline, not estimated. The published unit it comes from: July 2026 Annexure I, Chapter 10: Risk, Return and Performance of Funds
Does negative marking apply to NISM Series V-D?
Yes. NISM takes off 10% of a question's marks for a wrong answer. On a 1-mark question that is 0.1 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.
Mutual Fund Scheme Performance
5 questions on Mutual Fund Scheme Performance. Its quiz opens on that unit.
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