De-jargoned: Benchmarking

A benchmark index is used to compare returns of a fund.
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First Published: Thu, Apr 25 2013. 03 34 PM IST
We’ve told this before, but we’ll say it again: measuring your fund’s performance against the benchmark is vital.
The real picture
As per data provided by Value Research in 2012, an MF data tracking firm, in 10 out of total 18 fund houses, all equity schemes outperformed their respective benchmarks, for those that have a 10-year track record. Some of them, though, had just one scheme that had completed 10 years in existence. In the past seven-year period, six funds houses had a 100% outperformance record in the equity segment. However, there are certain fund houses that saw none of their equity funds outperforming.
What should you do?
There isn’t much that you can make out if your fund gives, say, a 20% return. It’s only when you compare it with something else that you can make out whether it is relatively better or not. The other object can be another MF scheme but since no two funds are alike, it can get subjective whether the other scheme is, indeed, comparable. Hence, a benchmark index, is chosen at the time of the scheme’s inception. It is necessary that your scheme beats at least its own benchmark consistently across all time periods. Your fund manager earns his fees for managing your funds; if she can’t even beat the benchmark index consistently, there is really little merit in sticking with the fund.
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First Published: Thu, Apr 25 2013. 03 34 PM IST
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De-jargoned: Fixed income obligations to income ratio

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