What is benchmark of a mutual fund and how it works

Benchmark:

Benchmark is a standard against which the performance of a mutual fund is measured. For example, the Nifty 50 is a benchmark against which many large-cap funds and index funds are measured. It provides an indicative value of how much an investment should have earned and how much it has earned in reality. Ideally, a Mutual Fund should follow its benchmark index. As per the guideline of the Securities and Exchange Board of India (SEBI), the declaration of a benchmark index is mandatory. 
AMC decides the Benchmark index for a mutual fund. The benchmark serves as a standard for the scheme’s returns. The Sensex and the Nifty are some well-known benchmarks that invest in large-company stocks.

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