MFs to develop benchmark indices for all fund categories

Sujoy Manna

Mumbai, Oct 17: The mutual fund industry is set to construct benchmark indices for all categories of funds. To this effect, a committee under the Association of Mutual Funds in India (Amfi) has been set up for considering the various issues relating to the construction of these indices. The committee is expected to submit its suggestions to the Amfi board by the end of this quarter.

AP Kurian

Speaking to The Financial Express, Amfi chairman AP Kurian said: “At present, equity funds are compared with indices like S&P CNX Nifty and the BSE 30-share Sensex. However, no indices are available to compare the performance of balanced, income and gilts funds. The committee has been set up under the chairmanship of Prudential ICICI AMC’s managing director, Shailendra Bhandari, to consider the various issues.”

“The objective of the committee is to construct indices which will give a fair benchmark to evaluate the performance of the funds. Moreover, the committee will suggest norms so that mutual funds themselves ensure that they are using appropriate indices while measuring their performance,” Mr Bhandari said.

The construction of these benchmark indices for other category of funds will enable investors to compare the performance of their schemes vis-a-vis the benchmark. Most of the developed markets have these benchmarks for comparing the performance of the schemes.

The committee is going to seek technical advice from credit rating agency Crisil. With regard to the diversified funds, the committee is to prescribe a limited number of indices from the available ones which the diversified funds can choose and benchmark their performance. At present, there is no uniformity as funds use any one of the indices from the available indices like, S&P CNX Nifty, Sensex, BSE 200 (Dollex) and S&P CNX 500 among others.

The committee is also likely to come out with norms for the sectoral funds as to which indices they should use. For example, an FMCG sectoral fund cannot benchmark itself against Nifty.

On the debt side, with regard to liquid funds, no index is yet available. The comparison is made with Mibor. Since the average investment period is of two months, the committee is to construct an appropriate index based on investment pattern.

Similarly with regard to gilt funds, an appropriate index has to be constructed which would be more representative to the mutual fund sector. For income funds which invest predominantly in corporate papers, a composite index has to be constructed and the committee is to seek advisory services from Crisil in this regard. Lastly, for the balanced fund also a benchmark index has to be constructed.