Investing glossary
Benchmark index
A benchmark index is the basket of assets that an index fund tries to replicate, or the yardstick against which an actively managed fund's performance is measured.
Common examples are the MSCI World (large companies in developed countries) or the S&P 500 (the 500 largest listed companies in the US). Each index has its own rules for selecting and weighting the companies it includes.
The gap between an index fund's actual return and its benchmark's return is called tracking error — the lower it is, the more closely the fund replicates its index.