Guiding Principles for bringing uniformity in Benchmarks of Mutual Fund Schemes

SEBI/HO/IMD/IMD-II DF3/P/CIR/2021/652 · 2021-10-27 · Securities and Exchange Board of India

Summary

SEBI mandates a two-tiered benchmarking structure for mutual fund schemes to standardize performance evaluation. The first tier reflects the scheme category while the second tier demonstrates the fund manager's investment style, with specific guidelines for various scheme types. AMFI is required to publish these benchmarks within specified timelines, and the framework becomes applicable from December 2021 onwards.

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there would be two-tiered structure for benchmarking of schemes for certain categories of schemes. The first tier benchmark shall be reflective of the category of the scheme, and the second tier benchmark should be demonstrative of the investment style / strategy of the Fund Manager within the category. All the benchmarks followed should necessarily be Total Return Indices.

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: Bespoke according to Investment Style/Strategy of the Index e.g.: AAA Bond Index

First Tier: One Broad Market Index per Index Provider for each category e.g.: S&P BSE 100 Index or NSE 100 Index for Large Cap Fund Category Second Tier: Bespoke according to Investment Style/Strategy of the Index e.g.: Nifty 50 Index

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.

There would be a single benchmark as characteristics of the schemes are already tapered according to the theme/sector.

There would be a single benchmark as these schemes replicate an underlying index.

if a FoF scheme is investing in a single fund, then benchmark of the underlying scheme shall be used for corresponding FoF. However, in case a FoF scheme invests in multiple schemes, then Broad Market Index shall be applied.

Depending on underlying asset allocation, Broad Market benchmark may be arrived at.

Benchmarks intended to be used by AMCs as first tier benchmarks within a period of one month from the date of issuance of this circular.

Benchmarks intended to be used as first tier benchmark by AMCs for open ended debt schemes as per the Potential Risk Class Matrix on or before December 1, 2021.

The second tier Benchmark is optional and shall be decided by the AMCs according to Investment Style/Strategy of the Index.

The framework specified by AMFI as referred at para 3(a) above shall come into force with effect from December 1, 2021 and the framework specified by AMFI as referred at para 3(b) above shall come into force with effect from January 1, 2022.

Source: SecMarx — Guiding Principles for bringing uniformity in Benchmarks of Mutual Fund Schemes. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.