A Mutual Fund's performance can be benchmarked against other Mutual Funds of similar type - for example, the performance of a diversified equity fund should be compared to similar funds in the industry or against established market indices like the BSE Sensex or the NSE Nifty. One can also benchmark the fund against any other broad-based index for the particular asset class. The Investment Manager usually decides a benchmark index at the time of conceptualization of the scheme and this benchmark serves as a good tool for comparison.
The comparison period for benchmarking Mutual Fund schemes has to be carefully decided. Equity funds should be ideally compared over a 1-2 year horizon. Any comparison over a shorter period would be distorted by short term, volatile price movements. Similarly, the ideal comparison period for a debt fund would be 6-12 months while that for a liquid/money market fund would be 1-3 months.
This blog is for the investors who have not yet started investing in mutual funds, but willing to explore the opportunity and also for those who want to clear their basics for what is mutual fund and how best it can serve as an investment tool.
Complete Guide of Mutual Funds
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