Mutual Funds
SEBI proposes to realign debt fund benchmark

The regulator is working on guidelines which will require debt schemes to have a T-bill or a G-security rate as their first benchmark; industry experts have mixed views on SEBI’s latest move

Market regulator Securities and Exchange Board of India (SEBI) is looking at realigning the benchmark of debt schemes. This move, according to SEBI, will provide a better comparison between absolute returns of a scheme and the benchmark to retail investors. The regulator has proposed that the first benchmark of all debt schemes has to be either a one-year tenured Treasury-bill (T-bill) rate or ten-year Government-security (G-Sec) rate depending on the maturity of the scheme. The second benchmark would remain the same as chosen by the fund house.

Currently short-term and ultra short-term debt funds are benchmarked to Crisil ST Bond and Crisil Composite Bond Fund Index.

However, some industry experts believe that changing the benchmark of debt schemes will be of little relevance. “These benchmarks are good and robust indices and the composition of these indices broadly reflects the asset allocation of the funds in the categories. For  example, a  Crisil  Liquid  Index would comprise a mixture of  treasury bills, certificates of  deposit (CDs) and commercial paper (CP) and other money market instruments, which  is  the  broad  category of assets that liquid  funds  invest in. So the current indices, which are used as benchmarks, are better suited as performance indicators rather than T-bills and govt securities. But since SEBI is proposing these as additional benchmarks, investors are given additional tools to evaluate performance,” said Ganti N Murthy, head-fixed income, Peerless Mutual Fund.

The 364-day T-bill is currently trading at 5.22% at the last cut-off and the 10-year 2019 expiry G-Sec rate is around 8.09%.

“T-bill or 10-year G-Sec would be a better benchmark. It may not be a technically right benchmark but it would be useful as retail investors have limited knowledge on debt funds. A lay investor can understand T-Bill or 10-year G-Sec from any financial newspaper,” said Vivek Rege, CFP, VR Wealth Advisors Pvt Ltd.

Besides, the regulator has also proposed to keep the expense ratio of debt funds at 1% by doing away with different expense slabs.

Debt funds typically invest in fixed-income instruments like government securities, corporate bonds, certificates of deposit, debentures, etc.

“There are advantages and disadvantages in using government securities and treasury bills as benchmarks. I think SEBI wants to use these as benchmarks as these are the risk-free rates, which are available in the market. But since most funds invest in a mix of both treasury bills/govt securities and corporate paper that is priced at a spread over and above government paper, these funds would always show a better return than these benchmarks. In a way, one can say all the funds have beaten the benchmark in performance. For them, the standard benchmark proposed may be more useful,” adds Mr Murthy.

Some experts believe that SEBI’s plans are in the right direction.

“I personally understand a Crisil benchmark and its relevance in benchmarking, but we should agree that a mutual fund is a product made for a layman, and for him to understand and appreciate a Crisil benchmark would require a higher investor literacy, which is absent,” added Mr Rege.



R. Balakrishnan

7 years ago

Does it matter? In debt funds, the fund managers have been thoroughly incompetent. The returns have been worse than fixed deposits. The fixed income dealers/fund managers are nothing but overpaid telephone gossip mongers. Not a single one has a long term view. Best is to stay away from 'fixed' income mutual funds..

New bulk water tariff on the cards for Maharashtra

As part of its various measures for better water supply and sanitation, the Maharashtra government is likely to implement a new bulk water tariff order in the next two months

As part of its various initiatives to improve water supply in the State, the Maharashtra government is likely to pass a new bulk water tariff order in the next two to three months. The new tariff order will reward water-saving initiatives as well as curtail unnecessary wastage.

The Maharashtra Water Resource Regulatory Authority (MWRRA) had submitted the bulk water tariff draft to the State government for consideration. MWRRA officials said that the new tariff is likely to be implemented in the next two months.

“The new bulk water tariff may be implemented in the next two to three months,” said SV Sodal, secretary, MWRRA.

According to the revised bulk water tariff draft uploaded on the MWRRA website, the policy will reward better water management practices with incentive discounts in the tariff. If metro corporations, municipalities (or any utility or bulk user) treats sewage effluents to required standards, the tariff on the quantum of water producing such effluents will be 75% of the applicable water tariff. If the effluents are not treated, the utilities and industries are likely to be charged two times the basic rate.

While water treatment would be rewarded, the new tariff also proposes higher tariffs on higher water consumption. Every bulk user, utility or municipality will be given a 10% bracket over and above its per capita daily requirement limit. If the user crosses the bracket it will be charged 50% more on the rate for its consumption above this 10% bracket.

The new tariff is likely to be implemented in the next two months for a period of three years up to 2013. Industrial bulk users will have to comply with these new rules with immediate effect. However, utilities like municipalities would be given a period of two years to have a better plan in place for water conservation and treatment.

Bulk water tariff refers to the tariff levied on bulk water users by the Water Resources Department on volumetric basis, as per the tariff order issued and in force on the date of levy.


Lanco Infratech wins Rs91 crore contract from AAI

Gurgaon-based Lanco Infratech Ltd said it won a contract, worth Rs91.66 crore, from Airports Authority of India (AAI) for construction of a new terminal building at Biju Patnaik Airport in Bhubaneswar.

On Friday, Lanco Infratech shares ended 1.2% down at Rs63 on the Bombay Stock Exchange, while the benchmark Sensex closed 0.6% up at 17,117 points.


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