Benchmark for life
The Hindu
Equity allocation can enhance your investment portfolio’s expected return
Benchmarks are important for equity investments. If you buy an exchange-traded fund (ETF) or an index fund, you want to know how closely the fund mirrors the benchmark index. If you buy an active fund, you want to ascertain if the fund consistently beats the benchmark index. In this article, we discuss whether the benchmark you choose should change based on goals for which you are making the investment.
You should first decide on your benchmark and then choose an appropriate fund based on the same. The benchmark you choose should represent all or a substantial proportion of the market capitalisation of stocks listed on an exchange. Why? Your objective of investing in equity is to improve expected return on your goal-based portfolio.