Against benchmark meaning12/15/2023 ![]() There is no ‘expense’ to be incurred by the index. In a MF scheme, there are recurring expenses, known as TER, or total expense ratio.Īn index tracks the price movement of the underlying instruments and the payouts, usually in the form of dividends. This becomes a drag when the market is rallying as the returns from the cash component is lower than stocks at that point of time. Many a times, the AMC runs a cash component in a fund to meet redemption pressure. Indices, however, are run on a pre-decided algorithm, including that stock which was rallying. This was due to certain corporate governance question marks and risk perception. Sometime earlier, a large cap stock was rallying in the market but most actively-managed-fund managers decided to avoid that stock. It is not only about the cap of 10%, but the fund manager may take a conscious decision to not exceed an internally decided limit for exposure. When one dominant stock runs up and the weightage is more than 10% in the index, it becomes a drag for a fund being compared with the index. The limit for a MF scheme per issuer is 10%. There are certain practical limitations in running an active fund as against the benchmark it is being compared with.įor one, there are sectoral and issuer level investment limits for MF schemes. Over the last few years, active funds have underperformed their benchmark, giving rise to an ‘active’ debate. The usage of benchmark is for performance comparison. For a debt fund, it would be the relevant Crisil or Nifty index. For an international (US) fund, it may be say S&P 500. For a small cap fund, it could be Nifty 100 Smallcap Index or Nifty 250 Smallcap Index or BSE Smallcap Index or BSE 250 Smallcap Index, as decided by the AMC. ![]() For example, for a large cap fund, the benchmark may be Nifty 100 Index or BSE 100 Index. In reality, tailor-made benchmarks are not available for the many funds on offer. Though there is no guideline as such from Sebi, the AMC chooses the benchmark that fits the given description of a fund. Sebi does not dictate what the benchmark should be the asset management company (AMC) decides that. As per the Securities and Exchange Board of India (Sebi) regulation, a mutual fund (MF) scheme has to set a primary benchmark for its performance, and an additional benchmark which is more bespoke. ![]()
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