A mutual fund scheme is required to have a benchmark. SEBI wants every fund to choose and share comparative performance with this chosen benchmark.
A benchmark is typically a publicly available market index such as the Sensex, Nifty 50, Nifty 500, BSE Mid cap, etc. This is true for equity funds. In case of debt or hybrid funds, some institutions, such as CRISIL, create custom indices that they funds can use for the purpose.
A benchmark ideally should have similar portfolio characteristics as the fund which intends to use it.
Now, here’s a question.