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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Selection

A distributor is selecting a benchmark to judge a large cap equity fund. Which approach is most appropriate?

The most appropriate benchmark is a large cap equity index, preferably its Total Return Index version. A benchmark must mirror the fund's investment universe, and the total return version includes dividends, giving a fair comparison with fund returns.

  1. AUse a broad large cap index such as a Total Return Index version of the relevant indexCorrect
  2. BUse the 91-day Treasury bill yield as the benchmark
  3. CUse the gold price as the benchmark
  4. DUse the return of the best-performing fund in the market as the benchmark

Explanation

A benchmark should reflect the fund's investment universe. For a large cap fund this is a large cap index, and SEBI requires performance comparison against Total Return Index, which includes dividends. T-bill yield and gold do not represent large cap equities, and the best fund is not a fixed benchmark.

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