What is the meaning of a mutual fund benchmark?
A benchmark is a standard used to measure how well a mutual fund is performing. It acts as a reference point to compare how much the fund has earned versus how much it should have earned. In India, the Securities and Exchange Board of India (SEBI) requires all mutual funds to declare their benchmark index. This helps investors understand how their investment is doing compared to a specific market index, like the Sensex or Nifty.
- For example, if your mutual fund is benchmarked to the Sensex, its returns are compared to how well the Sensex performs. If the Sensex rises by 14% in a year, and your mutual fund grows by 12%, your fund has underperformed. But if your mutual fund grows by 16% while the Sensex grows by only 14%, your fund has outperformed.
- The fund house (the company managing the fund) decides which benchmark is most suitable for their mutual fund. For large-cap funds, benchmarks like the Sensex or Nifty are standard. For small or mid-cap funds, indexes like the CNX Midcap or Smallcap are used.
Importance of Benchmarking
Benchmarking is important because it allows you to see how your investment is doing. If a mutual fund performs better than its benchmark, it means the fund manager is doing well. On the other hand, if the fund is performing worse than its benchmark, it may not be managed well.
When comparing a fund to its benchmark, it is essential to look at the performance over a longer period, like one year or more. This gives you enough time to judge how well the fund is doing.
How to Measure Fund Performance
To measure how your mutual fund is performing, check if it has earned more than its benchmark. The fund has done well if the return is higher than the benchmark. Also, you can use financial ratios like Beta, Alpha, and R-squared to understand the risk and performance of your fund compared to the benchmark.
In short, benchmarks help you track and assess the performance and strategy of your mutual fund investment.
This table provides examples of mutual fund schemes along with their respective benchmark indices. The benchmark for each scheme represents a broad market index or a segment of the market, depending on the scheme’s focus (e.g., large-cap, mid-cap, or sectoral).
| Mutual Fund Scheme Name | Benchmark |
| ICICI Prudential Bluechip Fund | Nifty 50 Index |
| SBI Magnum Multiplier Fund | S&P BSE 200 Index |
| HDFC Equity Fund | Nifty 50 Index |
| Aditya Birla Sun Life Frontline Equity Fund | Nifty 50 Index |
| Axis Long Term Equity Fund | Nifty 50 Index |
| Franklin India Prima Plus Fund | S&P BSE 500 Index |
| DSP Equity Fund | Nifty 50 Index |
| Motilal Oswal Nasdaq 100 Fund | NASDAQ-100 Index |
| Tata Equity P/E Fund | Nifty 50 Index |
| Kotak Standard Multicap Fund | Nifty 500 Index |
| UTI Nifty Index Fund | Nifty 50 Index |
| L&T Emerging Businesses Fund | Nifty Free Float Midcap 100 Index |
| Mirae Asset Large Cap Fund | Nifty 100 Index |
| Birla Sun Life Equity Fund | BSE Sensex Index |
| ICICI Prudential Technology Fund | Nifty IT Index |
| HDFC Mid-Cap Opportunities Fund | Nifty Midcap 150 Index |
