Similarly, for funds investing in the housing theme, the Nifty Housing Index would be the thematic benchmark that managers can use. Under thematic benchmarking, fund managers create customised benchmarks for the funds based on a specific theme or sector.įor instance, if the fund invests in the ESG (Energy, Social and Government) theme, the fund benchmark would be a thematic index like the Nifty 100 ESG Index. They typically serve as a benchmark for passively managed funds, helping investors who look for exposure to stocks with strong fundamental characteristics. They may also use elements like book value or revenue. Under fundamental benchmarking, market capitalisation is the main ‘fundamental’ criteria used when filtering stocks. Governments, central banks and economists use benchmarks to study the overall mood of the market/market segments/sectors and monitor trends.įundamental and thematic are two types of benchmark indices that differ in how they are constructed and what type of stocks they include.They can act as a reference point to evaluate the risk and return from a portfolio.Benchmark indices can help measure the overall performance of the stock market or a particular economic sector.Most managed funds have a standard benchmark against which they can be compared.A benchmark can help assess the performance of an asset, fund and or portfolio.The following are some reasons why benchmarks are important in investing: A benchmark error is not the same as a tracking error.A fund is considered to have underperformed if the returns are lower than its benchmark and vice versa. They are also useful for detecting trends and market moods.
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