mutual-fund

Sebi introduces a two-tiered structure for benchmarking MF schemes

Sebi introduces a two-tiered structure for benchmarking MF schemes

To standardize benchmarks of mutual fund schemes, the Securities and Exchange Board of India (Sebi) has decided to bring in a two-tiered structure for benchmarking of certain categories. The first-tier benchmark will be as per the category of the scheme, and the second tier should be reflective of the investment style or strategy of the fund manager within the category. Usually, the performance of a mutual fund scheme is assessed with reference to a benchmark, which could be a total return index (TRI) of CNX Nifty or BSE Sensex. In a circular issued on Wednesday, the regulator reiterated its stance that all the benchmarks should necessarily follow total return indices. TRIs take into account the price of the stocks as well as the dividend payout, while the price return index (PRI) such as Nifty and Sensex are based on the price of the stocks. For first-tier benchmarks of income/debt-oriented and growth/equity-oriented schemes, the regulator has suggested one broad market index per index provider for each category. For the second-tier benchmarks of these two categories, there should be a bespoke benchmark as per the investment style or strategy of the index. Sebi also said that for thematic/sectoral and index and ETF schemes, there would be a single benchmark. “Similar to an index fund and ETFs, if an FoF (fund of the fund) scheme is investing in a single fund, then benchmark of the underlying scheme shall be used for the corresponding FoF. However, in case an FoF scheme invests in multiple schemes, then broad market index shall be applied, Sebi said in a circular. For hybrid & solution-oriented schemes, there would be a single benchmark, i.e., broad market benchmark wherever available or bespoke to be created for schemes, which would then be applicable across industry. The regulator added that for other schemes, a broad market benchmark may be arrived at depending on the underlying asset allocation. Additionally, Sebi has advised the Association of Mutual Funds in India is to publish benchmarks intended to be used by asset management companies as first-tier benchmarks within a period of one month. Moreover, second-tier benchmarks for open-ended debt schemes have to be published by 1 December. The second-tier benchmarks are optional. Download.

mutual-fund 2021-10-27 Livemint