Peer comparison evaluates a mutual fund's performance against other funds in the same SEBI category — a more relevant benchmark than the market index alone for active fund selection.
SEBI's categorisation ensures that all funds in the same category follow similar mandates. Peer comparison asks: 'How does this specific fund rank among all funds in its SEBI category?' A large-cap fund should be compared only to other large-cap funds, not to mid-cap or flexi-cap funds. Peer comparison metrics include rank within category, percentile score, and performance relative to category average across 1/3/5/10-year periods.
It wouldn't be fair to compare a beginner athlete to a professional in the Olympics. Similarly, you shouldn't compare a largecap equity fund to a smallcap fund and call one 'better.' Peer comparison groups funds by their SEBI category and then ranks them within the group. A largecap fund ranked 3rd out of 30 largecap funds has done very well for its investors.
Identify the fund's SEBI category (e.g., Large Cap Fund).
Find all funds in that category — typically 20–50 funds.
Rank each fund by trailing returns (1yr, 3yr, 5yr), rolling returns, Sharpe ratio, etc.
Funds consistently in the top quartile (top 25%) across periods are considered strong performers.