The Securities and Exchange Board of India (Sebi) has proposed a two-tiered structure to standardise and ensure uniformity in the benchmarking of mutual fund schemes, giving investors the opportunity to easily compare performance of the various schemes.
In a circular issued on Wednesday, the market regulator said the first-tier benchmark will be reflective of the category of the scheme while the second tier should be demonstrative of the investment style or strategy of the fund manager. The new benchmarking will be implemented from January 1.
Ahead of its implementation, industry body Amfi has been asked to specify the first tier benchmark within a month.
The performance of a mutual fund scheme is assessed with reference to a benchmark such as the Sensex, Nifty and Nifty Ultra Short Duration Debt Index .
Sebi added that all the benchmarks should necessarily be total return indices (TRI). It may be recalled that in 2018, the market regulator had asked fund houses to adopt TRI to benchmark schemes, which is a more appropriate way to measure their performance.
TRI includes dividends in addition to the stock price movements. Earlier, most of the schemes were benchmarked to the Price Return variant of an index (PRI) which only captured capital gains of constituents.
However, the second tier benchmark is optional and shall be decided by the asset management companies .
The new benchmarking guidelines will be applicable for schemes such as debt-oriented, equity-oriented, hybrid and solution, thematic, index funds and exchange-traded funds (ETFs) and Fund of Funds Schemes (FoFs).
In the case of debt-oriented schemes and equity-oriented schemes, the market regulator said that under the first tier there would be one broad market index per index provider for each category.
For instance, in the ultra-short duration fund category, MFs could choose from the Nifty Ultra Short Duration Debt Index or Crisil Ultra Short Term Debt Index. Similarly, a AAA bond index can be used as the benchmark index, if a fund chooses to follow the second tier.
In the case of equity schemes, the market regulator proposed that for the first tier, schemes could use one broad market index per index provider such as the S&P BSE 100 Index or the NSE 100 Index for large cap fund category.
As regards hybrid and solution-oriented schemes, it said that there would be a single benchmark-broad market benchmark wherever available. Otherwise, a bespoke index will be created for schemes that would then be applicable across industry.
For thematic or sectoral schemes, Sebi said there would be a single benchmark as characteristics of the schemes are already tapered according to the theme or sector. With regard to index funds and ETFs, it said that there would be a single benchmark as these schemes replicate an underlying index.
Meanwhile, in a separate circular, the market regulator relaxed the framework governing the issue of shares with superior voting rights (SR shares), a move that is expected to help new-age technology companies.
Sebi had announced this decision at its board meeting last month. It said that promoters with a net worth of over Rs 1,000 crore can have superior voting rights in their companies, raising the threshold from the current Rs 500 crore. While determining the individual net worth of the superior voting right shareholder, his investment or shareholding in other listed companies shall be considered, but not that of his shareholding in the issuer company.
