Sebi tweaks benchmarking norms for MFs, brings in uniformity

Securities and Exchange Board of India (Sebi) has tweaked the benchmarking norms for mutual fund (MF) schemes in a bid to bring more uniformity.

The regulator has introduced a two-tiered structure for benchmarking of schemes and all the benchmarks followed should be total return index (TRI).

According to the circular, the first-tier benchmark shall be reflective of the category of the scheme, and the second-tier benchmark should be demonstrative of the fund manager's investment style or strategy within the category.

For income and debt-oriented schemes the first-tier benchmark could be a broad market index like Nifty ultra-short duration debt index or Crisil ultra-short term debt index for ultra short duration fund category. While the second-tier would be bespoke according to investment style or strategy of the Index like AAA Bond Index.

“The second-tier benchmark is optional and shall be decided by the asset management company (AMCs) according to Investment style,” said the circular.

Market participants say that this move will ensure that the comparison of the performance of mutual fund schemes would become simple going forward.

Benchmark is an index which is used to measure scheme’s overall performance. It provides an indicative value of how much investors' investment should have earned.  Ideally, a mutual fund’s target should be to beat its benchmark return.

For hybrid and solution-oriented schemes, sectoral schemes along with index funds and exchange traded funds (ETFs), there would be a single benchmark. Sebi has advised the Association of Mutual Funds in India (Amfi) to publish benchmarks intended to be used by AMCs as first tier benchmarks within a period of one month.

Benchmarks intended to be used as first tier benchmarks by AMCs for open ended debt schemes as per the potential risk class matrix on or before December 1, 2021.