Benchmark
The index or standard against which a portfolio's performance is measured.
Formula
Excess Return = Portfolio Return - Benchmark Return over the same period
Unit
%
In depth
The benchmark should be investable, published in advance and representative of the portfolio's actual opportunity set — choosing an easy one after the fact is the oldest trick in performance reporting. It must also be a total return index that includes dividends, since comparing a fund's total return against a price index flatters the fund by the dividend yield every year. Since 2018 SEBI has required Indian mutual funds to benchmark against total return indices for exactly this reason. A benchmark makes performance meaningful, because a 14% return means one thing when the index returned 9% and another when it returned 22%.
Worked example
A fund returns 14% while its total return index returns 12%, so excess return is 2 percentage points. Measured against a price index returning 10.5%, the same fund appears to have added 3.5 — the difference is dividends, not skill.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Benchmark” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.