I am new to investing and am confused about different funds in the same investor profile of OLM Elite having different benchmarks. Why is it so?
Veena Samuel, Chennai
Your concern is valid and the answer to that lies in understanding the reason for a fund having a benchmark. Every fund has a benchmark index, which is passive against which the fund performance can be gauged. This way, the out performance of the fund compared to its benchmark becomes the focal point in short-listing a fund to invest in. Moreover, different funds belong to different categories and depending on their investment objective, they base their performance to different indices.
For instance, a large-cap fund would use the S&P BSE Index as a benchmark compared to say a mid-cap fund, which may use the S&P BSE 200 index. As an investor, the comparison between the fund’s performance and its benchmark gives an assessment of how the fund is faring and useful to judge if the fund manager is doing his job to meet or beat the benchmark performance. However, do not be blinded by comparing the fund’s performance with just its benchmark, also compare funds that are similar as peer comparison gives you additional information on how the fund has fared.
