What is Benchmark in securities?
A Benchmark refers to a group or collection of securities which are regarded as a standard against which the performance of other investments like mutual funds, securities, etc. can be gauged. These are primarily Broad Market Indices like BSE Sensex, CNX Nifty, etc.
Benchmark indices are made to involve many different types of securities which represent a particular aspect of the total market and they have been established among all asset classes. Some of the popular benchmarks are as follows:
- S&P 500 and Dow Jones Industrial Average in the equity market
- Barclays Capital US Aggregate Bond Index, Barclays Capital US Treasury Bond Index in fixed income segment.
- Lipper indexes in mutual funds.
Identification and establishing a benchmark is a critical decision for investors as it assists in recognition of their individual investment funds and also allows better communication of their investment goals and expectations to their financial advisors.