The yardstick to measure a Mutual Fund's performance can be against  other  Funds of similar category - for example, the performance of a diversified equity fund should be in comparison to similar funds in the industry or could also be against established market indices like BSE-Sensex or NSE-Nifty. The fund manager usually decides a benchmark index at the time of conceptualization of the scheme and this serves as a effective  tool for comparison.

The period of comparison  of Mutual Fund schemes should also  be carefully decided. Ideally Equity funds should   be  compared over a 1-2 year horizon. Any comparison over a shorter period would be imprecise by short term, volatile price movements. Likewise, the ideal comparison period for a debt fund would be 6-12 months while that for a liquid/money market fund would be 1-3 months.