Prajna Capital - An Investment Guide

It is common knowledge that mutual funds are benchmarked against particular market indices. In general, diversified funds are benchmarked against Sensex or Nifty, while sectoral funds are benchmarked against their particular sector index. It is fair to then assume that the ups and downs of any index will affect the funds that are benchmarked against it. In other words, if the Sensex falls, you can expect a diversified fund like HDFC Equity (which is benchmarked against the Sensex) to fall as well. But while some funds might be affected more by an index's volatility, others might not. So, then how does an investor get an idea of how volatile a fund is with respect to its index? Here is where Beta enters the picture. Beta is the measure of a fund's (or stock's) volatility relative to the market or benchmark. For example, if a fund is benchmarked against the Sensex, a beta of more than 1 would imply that the fund is more volatile than the index. And of course, a beta of less ...