Money word, in plain English ← Back to all terms
Benchmark
The index a fund is measured against, to judge whether the manager actually added anything.
Example. A large-cap fund benchmarked to the Nifty 50 should be compared with that index.
A benchmark has to match the scheme objective, its asset allocation and its strategy, and it is named in the scheme document. Funds are compared against the total return version of an index, which counts dividends as well as price movement, so the comparison is fair. Judging a fund on its return alone tells you little. A fund up 11% while its benchmark rose 13% has underperformed, even though the number looks positive.
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