June 07 , 2012
If I were to tell you that my company's Oil Ship travels at 25 knots, most of you would not know how to react. Is this fast or slow? How does this compare with other ships? This is the process of bench marking; and you would hear this word often in any measurement of performance or returns.
The terms Nifty and Sensex are actually equity benchmarks. Similarly, there are benchmarks on the debt side as well. In case of mutual funds, comparison to benchmark shows the fund manager's skill in choosing funds, while removing the effects of market from the picture. In case of shares, comparison to benchmark shows how well that stock has done relative to the market.