Adopt total return index to benchmark schemes: Sebi to MFS

NEW DELHI: Markets regulator Sebi on Thursday asked mutual fund houses to adopt total return index (TRI) to benchmark schemes, which is a more appropriate way to measure the performance of such financial products.

This may make it difficult for fund houses to show a wide outperformance in case mutual funds decide to benchmark their schemes against TRI.

At present, most of the mutual fund schemes (other than debt schemes) are benchmarked to the Price Return variant of an Index (PRI) -- that only captures capital gains of the index constituents.

With an objective to enable the investors to compare the performance of a scheme visa-vis an appropriate benchmark, Sebi has decided that selection of a benchmark for the MF scheme should be in alignment with the investment objective, asset allocation pattern and investment strategy of the product.

"The performance of the schemes of a mutual fund shall be benchmarked to the Total Return variant of the index chosen as a benchmark," Securities and Exchange Board of India (Sebi) said in a circular.

TRI includes dividends and other gains in addition to the stock price movements, improving the value of the index.

The new norms will be applicable to all schemes of mutual funds with effect from February 1, 2018.

Mutual funds are required to disclose the name of bench- mark index with which the Asset Management Company (AMC) and trustee compare the performance of the product in 'scheme related documents'.

Further, Sebi said that mutual funds need to use "a composite CAGR (compound annual growth rate) figure of the performance of the PRI benchmark (till the date from which TRI is available) and the TRI (subsequently) to compare the performance of their scheme in case TRI is not available for that particular period."