SEBI has issued new disclosure norms requiring mutual funds to benchmark scheme performance against a Total Return Index rather than a Price Return Index. A Total Return Index considers capital gains as well as dividends/interest from index constituents, providing a more accurate measure of performance. Most schemes currently use the Price Return Index, which only considers price movements. The new benchmarking requirement may make it more difficult for schemes to outperform their benchmarks and could lead more investors towards lower cost index funds and ETFs.

1. SEBI DISCLOSURE
NORMS ON RETURNS
Presentation by
Abdulkarim khanapuri MB161001
Under the guidance of
Mr. Mahantesh Kuri

2. Securities and Exchange Board of India
CIRCULAR
January 4, 2018
All Mutual Funds/Asset Management Companies /Trustee Companies/Boards of Trustees
of Mutual Funds/ AMFI
Benchmarking of Scheme’s performance to Total Return
Index
What is a benchmark?
• A benchmark is a standard against which the performance of a
mutual fund can be measured.
• Since 2012, SEBI made it mandatory for fund houses to declare
a benchmark index.

3. How do you measure performance of a mutual fund against
its benchmark?
If the scheme’s returns > Benchmark returns Outperformed the Benchmark
If the scheme’s returns < Benchmark returns Underperformed the Benchmark
SEBI
o Selection of a benchmark for the scheme of a mutual fund
shall be in alignment with the investment objective, asset
allocation pattern and investment strategy of the scheme.
o Mutual Funds are required to disclose the name(s) of
benchmark index/indices with which the AMC and trustees
would compare the performance of the scheme in scheme
related documents.
o To enable the investors to compare the performance of a
scheme with an appropriate benchmark and with an

4. Price return index (PRI) Total return index (TRI)
 Method of calculating the
return on Benchmark (index)
 Method of calculating the return
on Benchmark (index)
 PRI considers price movements
(capital gains or losses) of the
securities (stocks) that make up
the index constituents.
 TRI measures the performance
by taking into account all
dividends/ interest payments of
the index constituents including
capital gains.
 At present, most of the mutual
fund schemes (other than debt
schemes) are benchmarked to
the PRI.
 TRI is more appropriate as a
benchmark to compare the
performance of mutual fund
schemes.

5. Example:
June 2017- 900
June2018- 950
March- dividend of INR 5/per share
PRICE RETURN INDEX TOTAL RETURN INDEX
capital gain or loss
Initial price
dividend + (capital gain or loss)
Initial price
950 − 900
900
𝑋 100
5 + (950 − 900)
900
𝑋 100
5.56 6.11%

6. Example, ABC scheme had been launched on August 2, 1995.
The benchmark PRI values are available from the date of
of the fund. The benchmark TRI values are available from June
1999. The calculation of a composite benchmark performance
return in CAGR terms would be as given below
Example: consolidated Benchmark CAGR (PRI and TRI)
Date Benchmark PRI values Benchmark TRI values
02/08/1995 1007.57 -
30/06/1999 1187.70 1256.38
30/11/2017 10226.55 13966.58
CAGR 12.69%

7. PRI calculation
(old)
TRI calculation
(new)
Difference
CAGR= 11.11% CAGR=12.69% 1.58
How it impacts the investors
 More difficult to beat Benchmark
 Index funds and ETF’s will become more popular
 Decrease in expense ratios

9. Thank You