Here is a collection of must-see videos that will help you understand the world of mutual funds. Happy Investing!

Financial discipline is similar to going on a diet. It is never easy. There are plenty of temptations - an urge to over spend, letting emotions control your investments and confusion due to the problem of plenty - look at the plethora of options available in the market, with the returns of one scheme trying to beat the other. Who does one turn to for advice? Dependency on one person or your financial advisor alone is also tricky. Which is why people often turn to mutual funds.

The argument here is that experts are taking care of your investments. Depending on your investment appetite and risk appetite, mutual funds come with a good mix of both equity and debt, which helps you earn an interest of 12-15% or more depending on the type of investment schteme you have picked and how the markets have performed overall. Yet, selecting a mutual fund can be confounding due to the raft of choices available.

Episode 49 I Expert

Significance of a benchmark

In 2012, SEBI or Securities Exchange Board of India made it mandatory for fund houses to declare a benchmark index. A benchmark is based on the objectives of a fund and is independent. It is a standard against which the performance of a mutual fund can be measured.

Benchmarks are created across all types of asset classes. Generally, large-cap equity mutual funds benchmark themselves against the Sensex or the Nifty. Others are benchmarked against CNX mid-cap, CNX small cap and S&P BSE 200. A fund's returns should be compared to its benchmark to understand how a fund has performed.

There are times a scheme would deliver higher returns than the benchmark, in this situation it has outperformed the benchmark, however, if it has delivered returns below the benchmark it’s a clear sign the fund has underperformed the benchmark.

Sometimes over a period of time, the benchmark index falls and at the same time, your fund’s NAV also falls. In this case, you can still say the fund has outperformed the benchmark.

Actively managed funds do charge you a fee for their services so if the performance falls in line with the benchmark, you could say it is has underperformed as it should deliver returns equal to an index fund.

Choosing a fund by comparing its benchmark is one way to choose a fund. A short-term performance isn’t something you should base your decision on. You should look at the long-term returns on the fund before you decide to invest.

A benchmark indicates the fund manager’s performance. If a fund outperforms the benchmark it is an indication of efficiency on his behalf thereby making it a safe investment over a period of time. Before you invest it is important you understand your own risk profile and evaluate your need before making an investment.