Stocks

SEBI pitches for uniformity in benchmarks for MFs

Our Bureau Mumbai | Updated on October 27, 2021

Market regulator SEBI has decided to implement a two-tiered structure for benchmarking mutual fund schemes in order to bring uniformity. The first-tier will be reflective of the category of the scheme and the second-tier benchmark will be demonstrative of the investment style and strategy of the fund manager within the category.

All the benchmarks followed should necessarily be Total Return Indices, said SEBI in a circular on Wednesday.

For equity growth oriented schemes, the first-tier benchmark would be one of the broad market indices per index provider for each category such as S&P BSE 100 Index or NSE 100 Index for Large Cap Fund Category while the second-tier would be according to investment style or strategy of the index such as Nifty 50 index.

For income and debt schemes the first benchmark would be one broad market index for each category such as Nifty Ultra Short Duration Debt Index or Crisil Ultra Short-Term Debt Index for Ultra Short Duration Fund Category and second-tier would be of AAA Bond index.

Hybrid schemes

For Hybrid and Solution Oriented Schemes there would be broad market benchmark wherever available or bespoke to be created for schemes, which would then be applicable across the industry.

The thematic and sectoral schemes would also have a single benchmark as characteristics of the schemes are already tapered according to the theme and sector.

Index/ETFs

Index Funds and Exchange Traded Funds would have a single benchmark to replicate the underlying index. Similarly for Fund of Funds scheme, which is investing in a single fund, then benchmark of the underlying scheme will be used for corresponding FoF. However, in case of a FoF investing in multiple schemes, then broad market index will be applied, it said.

For other schemes, depending on underlying asset allocation, broad market benchmark may be arrived at by the fund houses, said SEBI.

The market regulator has directed AMFI to publish benchmarks intended to be used by AMCs as first-tier benchmarks in one month from the date of issuance of the circular and would be applicable from December 1. 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 and will come into effect from January 1.

The second-tier benchmark is optional and shall be decided by the AMCs according to investment style and strategy of the index.

Published on October 27, 2021

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