New benchmark indices soon to assess performance of MFs

Sharad Mistry

Mumbai, Jan 2: A whole new range of benchmark indices are likely to be available soon for the first time to investors in a cross section of mutual funds including equity, debt, balanced, sectoral funds and even monthly income plans. These benchmark indices would help the investors assess the overall performance of their mutual funds.

Among other indices like the BSE Sensex and S&P CNX Nifty, the list of benchmark indices for mutual funds may even have the presence of Morgan Stanley Capital International (MSCI) Index for Indian equities, which is currently tracked by a handful of foreign mutual funds operating here.

MSCI Index has a host of indices to track investment in various countries worldwide and is primarily used by foreign institutional investors.

"We are looking at various benchmark indices to help investors assess the performance of their funds", said a top source with the benchmark committee set up by the Association of Mutual Funds of India (Amfi). "Among others, one of them is MSCI to compare the equity funds".

The committee, jointly working on the various benchmark indices with Crisil and the National Stock Exchange (NSE), will forward its proposal to the Amfi sometime later this month which will be discussed among the 34 Amfi members. The report would thereafter be forward to Securities and Exchange Board of India (Sebi) for its approval.

Subject to Sebi clearance of the benchmarks, these new assessment tools for mutual funds are expected to be in place by early February/March, industry sources say.

Currently, mutual fund investors get a fair assessment of their mutual fund’s performance through the net asset values (NAVs) of respective schemes. Also, the overall performance of the mutual fund schemes are generally benchmarked against the two indices, the BSE-30 Sensitive Index (Sensex) and the S&P CNX Nifty.

However, for more clearer assessment of the mutual fund’s performance and inter scheme comparisons, the benchmark committee has proposed introducing benchmark indices for equity, debt, balanced, MIPs and sectoral funds like information technology, finance, pharmaceuticals and other sectors.

Once introduced, these benchmarks would help investors the performance of the funds they have invested in against the performance of select top performing funds in similar category like equity, debt, balanced and sectoral funds.

The equity funds would have wider choice to benchmark their performance in addition to BSE-30 Share sensex, S&P CNX Nifty, BSE 200 and S&P CNX 500.

The As regards the income fund index, the benchmark committee has worked with Crisil and ICICI to consider including the play of not just the government securities and the corporate bonds, but also the call money and other instruments in the wholesale debt market.

One of the major intriguing factor in selecting index for the balanced fund index was the level of equity and debt investments that each of the balanced funds adopt. Usually, majority of balanced funds have a policy to invest up to 80 per cent of the funds in equity and the balance in debt products.

"The balance fund investment is a dynamic approach and therefore, in order to retain the tax benefit into consideration, it would be fair to keep the minimum share of equity component to 50 per cent.
However, this can be extended to around 80 per cent with the average somewhere in between these two points", said the committee source.

However, the consistency in maintaining the proportion of equity and debt investments in the debt funds too would be an important point to consider, the source added. Lastly, the sectoral funds, considered to be high risk high return proposition are the most difficult ones to have benchmark indices.