I am 41 years married and residing in Raichur. I have been following and studying equity mutual fund schemes on various websites for the last 6 months to study their performance.I plan to invest in an equity mutual fund scheme soon but I have a doubt. Most schemes have compared themselves with a benchmark index. Why do different funds have different benchmark indices to compare with? Is it the right way to judge a scheme? I am confused. Please advise?
The purpose of having a benchmark for a fund is to be able to compare returns between a passive investment instrument (index) and an actively managed fund and thus determine the value that the fund manager is delivering to your investment. Depending on the category a scheme belongs, a benchmark index is chosen that is appropriate. 1. For example, a large-cap fund that invests in the largest companies in the market would benchmark itself against the BSE Sensex index or the Nifty 50 index, which are indices that contain the large companies in the market. Choosing any other benchmark index would be an inappropriate comparison. 2. Comparing the performance of a fund with the benchmark performance is a fair way to judge the scheme and the value that it is delivering. 3. it would also be useful to compare the performance of the scheme with its peers (other schemes that belong to the same category), and see how the equity mutual fund scheme where you plan to invest performs.