Sebi to MFs: Adopt total return index to benchmark schemes

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

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Sebi has said 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 Securities and Exchange Board of India (Sebi) on Thursday asked the mutual fund houses to adopt total return index (TRI) to benchmark schemes. According to the regulator, TRI is a more appropriate way to measure the performance of such financial products.

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

Sebi has now said that selection of a benchmark for the mutual fund scheme should be in alignment with the investment objective, asset allocation pattern and investment strategy of the product. This has been done with an objective to enable the investors to compare the performance of a scheme in relation to an appropriate benchmark, said Sebi.

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“The performance of the schemes of a mutual fund shall be benchmarked to the Total Return variant of the index chosen as a benchmark,” Sebi said.

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