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The Securities and Exchange Board of India (SEBI) has decided to implement a two-tiered structure to regulate benchmarks concerning mutual fund schemes. The first-tier benchmark will be as per the category of the scheme. The second tier should reflect the strategy or the investment style of a fund manager within a category. A mutual fund scheme’s performance is evaluated with respect to a benchmark, the Total Return Index (TRI) of BSE Sensex or CNX Nifty.
The markets regulator has emphasised that each benchmark should comply with TRIs. TRIs will consider the stock prices and the dividend payout, whereas the price return index such as Sensex and Nifty will depend on the stock prices.
The regulator has recommended one comprehensive market index per index provider for every category concerning first-tier benchmarks of growth/equity-oriented and income/debt-oriented schemes. The regulator also said that there must be a bespoke benchmark as per the strategy or investment style of the index concerning the second-tier benchmarks of growth/equity-oriented and income/debt-oriented schemes. SEBI also has mentioned that there will be a single benchmark concerning sectoral, thematic, and Exchange-traded Fund (ETF) schemes.
For hybrid and solution-oriented schemes, a single benchmark will be applicable. This benchmark will be a broad market benchmark wherever available or bespoke that needs to be created concerning schemes, which would later apply across the industry. For the other schemes, a broad market benchmark might be introduced based on the underlying asset allocation.
SEBI has also recommended to the Association of Mutual Funds in India to print the intended benchmarks utilised by asset management companies as first-tier benchmarks in less than a month. The second-tier benchmarks concerning open-ended debt schemes need to be published by 1 December. However, they are optional.
For any clarifications/feedback on the topic, please contact the writer at bhavana.pn@cleartax.in
Bhavana is a Senior Content Writer handling the GST vertical. She is committed, professional, and has a flair for writing. When away from work, she enjoys watching movies and playing with her son. One thing she can’t resist is SHOPPING! Her favourite quote is: “Luck is what happens when preparation meets opportunity”.
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