With an objective of enabling investors to better compare the performance of mutual fund schemes, markets regulator the Securities and Exchange Board of India (Sebi) on January 4 asked mutual fund houses to adopt Total Return Index (TRI) as a benchmark. At present, most of the mutual fund schemes are benchmarked to the Price Return variant of an Index (PRI), which only captures capital gains of the index constituents. “While Total Return variant of an Index (TRI) takes into account all dividends and interest payments that are generated from the basket of constituents that make up the index in addition to the capital gains. Hence, TRI is more appropriate as a benchmark to compare the performance of mutual fund schemes,” Sebi said in a press release.
Kaustubh Belapurkar, director – fund research, Morningstar Investment Advisor, said: “Sebi’s circular on mutual funds to benchmark against the Total Returns Index is another step taken towards increasing transparency for investors. While India still remains an active managers market, the level of alpha especially in large-cap funds has been coming off over the years. As the markets become more efficient and the fund industry assets grow, average alpha being generated is bound to come down. Thus, using a Total Returns Index becomes pertinent, whereby investors can make apples to apples comparison while evaluating fund performance”.
