Benchmark — Mutual Fund Term Explained

The market index a fund is compared against. A fund manager must beat the benchmark consistently to justify active management fees.

A benchmark is the market index against which a fund's performance is compared. For large cap funds: Nifty 50 or BSE 100. For mid cap: Nifty Midcap 150.

Studies show most active funds underperform their benchmark over 10+ years (SPIVA India Report).

Related terms

• Alpha — The excess return a fund generates over its benchmark. Positive alpha means the manager added value beyond what the market delivered.
• Tracking Error — For index funds: how closely the fund tracks its benchmark. Lower is better — high tracking error means the fund deviates from the index.
• Information Ratio — Measures how consistently a fund beats its benchmark per unit of active risk. Higher and more consistent is better.
• Index Fund — A passively managed fund replicating a market index like Nifty 50. Ultra-low cost (0.05%). Most active funds underperform over 10+ years.

Browse the full mutual fund glossary, or see this concept in action in the fund screener.