Definition
A benchmark is a standard or reference point used to compare the performance of an investment. It helps investors understand whether their investment is doing better or worse than the overall market.
Example
If a mutual fund gives a return of 12%, and its benchmark index gives 10%, the fund has performed better than the benchmark. In India, indices like Nifty 50 or Sensex are often used as benchmarks.
Caution
A benchmark only provides a comparison. It does not guarantee performance. Investors should also consider factors like risk, investment goals, and market conditions while evaluating returns.