Benchmarking PMS Performance – The Science of Fair Comparison

Numbers mean nothing without context. Benchmarks provide that context—yet many investors unknowingly compare apples to oranges.

How Benchmarks Are Chosen
SEBI requires every PMS to disclose a relevant benchmark.

• Large-Cap PMS → Nifty 100 Total Return Index.
• Multi-Cap → Nifty 500 TRI or BSE 500 TRI.
• Thematic → Sectoral Index (IT, Pharma, Consumption etc.).

What to Watch

• Style Drift: A mid-cap strategy holding large-caps may outperform—but misleadingly.
• Benchmark Mismatch: Be sure the comparison reflects mandate and risk.
• Reporting Metric: Use Time-Weighted Return (TWRR) for manager skill, Money-Weighted Return (MWRR) for your personal experience.

Practical Tip
Request quarterly attribution—how much came from sector allocation, stock selection, or cash holdings. Proper benchmarking converts data into insight.

Key Takeaway: Performance without context is just luck in disguise.
 

Disclaimer: Educational only.