When you look at a mutual fund’s performance, you would normally find comparison of the returns with a ‘benchmark’. In 2012, SEBI mandated all fund houses to declare a benchmark index which is independent of the fund and is based on its investment objectives. It helps prospective investors to understand the anticipated performance and returns of the scheme. Some commonly used benchmark indexes are BSE SENSEX, NSE Nifty, etc.
While a benchmark declared as a standard against which a fund’s performance can be gauged, blindly following the comparative performance can be counterproductive. For all practical purposes, investors are better advised to look at this comparison along with recent and historical performance of the fund during the bullish and bearish cycles of the market. A holistic view of the performance of the fund can help investors take informed decisions.