Right Benchmark for the Correct Picture
Nov 28, 2014
Right Benchmark
for the Correct Picture
Is your investment a performer or an
under-performer?
Compare its performance with its benchmark
to know the answer…
Valid Comparisons
Taking investment decisions is not easy. It involves a lot of comparison, analysis and
interpretation.
When comparing the past performance of two investment products, it is very important
to compare apples with apples and oranges with oranges
For instance, its incorrect to compare the performance of a balanced mutual fund with
an equity diversified fund or a mid cap fund with a large cap fund
Similarly its incorrect to compare the performance of long term investment products such
as life insurance with a small to mid term investment product such as a mutual fund
A valid comparison is one between products with similar features and risk profiles.
Another simpler way of comparing investment avenues is simply comparing
products with their respective benchmarks.
Comparing Benchmarks
What Is A Benchmark?
As per Investopedia, a benchmark is
‘A standard against which the performance of a security, mutual fund or
investment manager can be measured.’
Thus a benchmark can be an index, a combination of an index or even a price
of a commodity in the spot (i.e. cash) market
For instance, indices such as the BSE Sensex, BSE Midcap and CRISIL
Balanced Fund Index or the spot price of gold can be used as effective
benchmarks for an index fund, midcap fund, balanced fund and gold ETF,
respectively
How does Benchmarking help?
Many a times, considering the standalone performance of an investment
avenue may be misleading
For instance, an investment which may have given a 1-year return of 20 per
cent may seem to be a performer
However, that would be true only if its benchmark has delivered a lower
return than that
But, if the return from the benchmark is higher, then, it can be safely
concluded that the performance is not at par
How well is your Investment Performing?
Conclusion
Remember!
Generally, every investment has its own pre-defined benchmark
Investors also can create their own benchmarks for comparison as long as
they have similar features and risk profiles as the investment option
There might be occasions where investment firms use inappropriate
benchmarks for comparison just to highlight their performance
In such a situation, investors can compare them with the correct benchmark
or with the category average
This will help investors to get a clear picture about the investment’s relative
performance with the benchmark
Disclaimer
Insurance is the subject matter of the
solicitation. Please read the sales
brochure carefully before buying the
plan. IndiaFirst Life Insurance Company
Limited. IRDA Registration No. 143.
Registered and Corporate Office
Address: 301, 'B' Wing, The Qube,
Infinity Park, Dindoshi - Film City Road,
Malad (East), Mumbai - 400 097.
www.indiafirstlife.com. SMS <FIRST> to
5667735 SMS Charges apply. Toll free
No - 1800 209 8700.
Thank You