How benchmarking helps investors pick winning mutual funds
A mutual fund’s returns tell only one part of the story. To judge whether a scheme has performed well, investors need to compare its returns with a benchmark. A look at what it means for investors
WHAT IS A BENCHMARK IN MUTUAL FUNDS?
A benchmark is a standard against which a mutual fund scheme’s performance is measured. Market regulator Sebi requires every mutual fund scheme to declare a benchmark index, regardless of its category. The benchmark acts as a yardstick that helps investors judge how well a mutual fund has performed. It helps investors see whether a fund has done better or worse than the market
WHAT ARE SOME POPULAR BENCHMARKS USED BY MUTUAL FUNDS?
Most large-cap equity funds use the Nifty 50 TRI or Sensex as their benchmark. Other commonly used equity benchmarks include the Nifty Midcap 150 TRI, Nifty Smallcap 250 TRI and Nifty 500 TRI. In debt funds, liquid funds are often benchmarked against the CRISIL Liquid Debt Index, while gilt funds may use the CRISIL Dynamic Gilt Index.
WHY IS A BENCHMARK IMPORTANT FOR FUND MANAGERS AND INVESTORS?
A benchmark acts as a reference point for both fund managers and investors. For fund managers, it provides a target against which they can measure the performance of their investment decisions. For investors, it helps them assess whether a fund is doing better or worse than the market or the segment it invests in. Without a benchmark, it is difficult to judge how well a fund has performed.
WHAT IS A BENCHMARK IN MUTUAL FUNDS?
A benchmark is a standard against which a mutual fund scheme’s performance is measured. Market regulator Sebi requires every mutual fund scheme to declare a benchmark index, regardless of its category. The benchmark acts as a yardstick that helps investors judge how well a mutual fund has performed. It helps investors see whether a fund has done better or worse than the market
WHAT ARE SOME POPULAR BENCHMARKS USED BY MUTUAL FUNDS?
Most large-cap equity funds use the Nifty 50 TRI or Sensex as their benchmark. Other commonly used equity benchmarks include the Nifty Midcap 150 TRI, Nifty Smallcap 250 TRI and Nifty 500 TRI. In debt funds, liquid funds are often benchmarked against the CRISIL Liquid Debt Index, while gilt funds may use the CRISIL Dynamic Gilt Index.
WHY IS A BENCHMARK IMPORTANT FOR FUND MANAGERS AND INVESTORS?
A benchmark acts as a reference point for both fund managers and investors. For fund managers, it provides a target against which they can measure the performance of their investment decisions. For investors, it helps them assess whether a fund is doing better or worse than the market or the segment it invests in. Without a benchmark, it is difficult to judge how well a fund has performed.
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