Market regulator Securities and Exchange Board of India (SEBI) has introduced a two-tiered structure for benchmarking schemes for certain categories of funds.
The first benchmark will reflect the category of the scheme and the second benchmark will reflect the investment style of the fund manager. All benchmarks will have to be Total Returns Index.
Currently, fund houses disclose the first benchmark which is the fund's investment universe. The second benchmark is a broader index such as S&P BSE Sensex, in the case of equity funds. For instance, some ESG Funds are benchmarked against NIFTY100 ESG TRI and additional benchmark is S&P BSE Sensex TRI.
Going forward, SEBI has mandated the following structure for funds:
Income/Debt Oriented Schemes
- First Tier: One Broad Market Index per Index Provider for each category e.g.: NIFTY Ultra Short Duration Debt Index or CRISIL Ultra Short Term Debt Index for Ultra Short Duration Fund category.
- Second Tier: According to investment style/strategy of the Index e.g.: AAA Bond Index.
Equity Schemes
- First Tier: S&P BSE 100 Index or NSE 100 Index for Large Cap Fund Category.
- Second Tier: According to investment style/strategy of the Index e.g.: Nifty 50 Index.
Hybrid and Solution Oriented Schemes
Single benchmark: Broad Market benchmark wherever available or bespoke to be created for schemes, which would then be applicable across industry.
Thematic/Sectoral schemes
Single Benchmark
Index Funds and Exchange Traded Funds (ETFs)
Single benchmark
Fund of Funds Schemes (FoFs)
- Schemes investing in a single fund: Benchmark of the underlying scheme.
- FoF investing in multiple schemes: Broad Market Index.
The regulator has advised Association of Mutual Funds in India (AMFI) to publish the first-tier benchmarks which will be used by AMCs by December 1, 2021.
The second-tier benchmark is optional and shall be decided by the AMCs according to the investment style/strategy of the index.