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A benchmark is the standard, or a set of standards, used as a point of reference for evaluating performance of a fund or level of quality. A benchmark is a point of reference by which something can be measured. Benchmarks may be drawn from a legal requirements such as environmental regulations firm's own experience or from the experience of other firms in the Industry.
In Mutual Funds, the scheme's target should be the benchmark’s return, and if the fund manages to beat the benchmark, it will be considered to have done well. It is the mutual fund house that determines the scheme’s benchmark index.
The National Stock Exchange (NSE) Nifty, the Bombay Stock Exchange (BSE) Sensex, S&P BSE 200, CNX Smallcap and CNX Midcap and are some of the known benchmarks that invest in large-company stocks. are some other benchmarks.
If the return exceeds the benchmark then your mutual fund has outperformed. If the benchmark registers a higher return than your mutual fund then your funds have underperformed. Moreover, if the benchmark index recorded a consistent fall over a period of time in which your mutual fund’s Net Asset Value fell too, but by a very lesser percentage than the benchmark index, then it can be said that your fund has again outperformed the benchmark.
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If fund performs > Benchmark = Fund has outperformed
If fund performs < Benchmark = Fund has underperformed