![]() However, you can overcome this divergence by simply comparing each individual fund against the average returns of all funds in the large-cap category, regardless of which benchmark they have chosen. ![]() Some of these funds may choose Nifty 50 as a benchmark and others may choose Nifty 100. These funds are required to adhere to the same rules as the fund in question and hence they can be easily compared with that fund.įor example, all large-cap funds are required to invest 80-100% of their assets in large-cap stocks (defined as the top 100 stocks by market capitalization). A category average will include all the funds in a particular category- such as all mid-cap funds or all small-cap funds. When the benchmark selected by a fund is inappropriate, the investor should compare the fund with its category average performance rather than its benchmark performance. How to Overcome the Problem of an Inappropriate Benchmark? For example, Kotak Standard Multicap Fund uses Nifty 200 as its benchmark rather than Nifty 500, despite being able to buy companies other than the top 200 companies listed on stock exchanges. However, sometimes, the selected benchmark may not be completely appropriate and may flatter the performance of a fund. For example, HDFC Top 100 Fund, a large-cap equity fund uses the Nifty 100 TRI as its benchmark while HDFC Equity Fund, a multi-cap fund uses the Nifty 500 TRI as its benchmark. In most cases, SID becomes the benchmark of the fund and is reported on mutual fund and third-party websites. Mutual Funds are required to declare their own benchmarks in their filing documents (called SID or Scheme Information Document). ![]() However, the benchmark chosen can give you a rough idea of the kind of rights you will get. Such funds have no past history or track record.
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