Amfi lists first-tier benchmarks for mutual fund schemes

The Association of Mutual Funds in India (AMFI) has published the list of indices intended to be used by AMCs as first-tier benchmarks.

A circular put out by the Securities and Exchange Board of India (Sebi) in October last year had asked the industry to bring in uniformity in the benchmarks of mutual fund (MF) schemes. The regulator had mandated a two-tiered structure for benchmarking of schemes for certain categories of schemes.  The first tier benchmark would be reflective of the category of the scheme, and the  second-tier benchmark  would be demonstrative  of  the investment  style and strategy  of  the  fund  manager  within the category. All the benchmarks followed should be total return indices.

Amfi has listed out tier one benchmarks for 67 types of schemes. For instance, a large cap fund will have Nifty 100 as the tier one benchmark, while a mid cap fund will have Nifty Midcap 150 as the benchmark.

“Having a common category benchmark is useful for investors to make a relative performance comparison for funds within a category to a single benchmark which is typically representative of the broader investment universe for the category.  In addition, several other ratios that investors use such as information ratio and capture ratios will be calculated using a common benchmark for a category,” said Kaustubh Belapurkar, Director – Manager Research, Morningstar India.

He added that funds can also benchmark themselves against a secondary benchmark which is representative of their investment style. “This will help investors identify the specific style of a fund and compare the fund’s performance versus that benchmark too,” he said.