SEBI Issues Guidelines for Two-tiered Structure for Benchmarking of Mutual Fund Scheme
Moneylife Digital Team 27 October 2021
Market regulator Securities & Exchange Board of India (SEBI) has issued guiding principles for bringing uniformity in benchmarks of mutual fund (MF) schemes. Accordingly, there would be a two-tiered structure for benchmarking schemes for specific categories from 1 December 2021. 
 
In a release, SEBI says, "The first tier benchmark shall be reflective of the category of the scheme, and the second tier benchmark should be demonstrative of the investment style or strategy of the fund manager within the category. All the benchmarks followed should necessarily be total return indices."
 
Here are the guiding principles for first-tier benchmarks:
 
i. For Income or Debt-oriented Schemes 
 
First Tier: One Broad Market Index per Index Provider for each category. For example,NIFTY Ultra Short Duration Debt Index or CRISIL Ultra Short Term Debt Index for Ultra Short Duration Fund Category
 
Second Tier: Bespoke according to Investment Style or Strategy of the Index. For example, AAA Bond Index 
 
ii. For Growth or Equity-oriented Schemes
 
First Tier: One Broad Market Index per Index Provider for each category. For example, S&P BSE 100 Index or NSE 100 Index for Large Cap Fund Category
 
Second Tier: Bespoke according to Investment Style/Strategy of the Index. For example, Nifty 50 Index
 
iii. For Hybrid and Solution-oriented Schemes 
 
There would be a single benchmark, i.e., broad market benchmark wherever available or bespoke, to be created for schemes, which would then be applicable across the industry.
 
iv. For Thematic or Sectoral Schemes
 
There would be a single benchmark as characteristics of the schemes are already tapered according to the theme or sector.
 
v. For Index Funds and Exchange-traded Funds (ETFs)
 
There would be a single benchmark as these schemes replicate an underlying index.
 
vi. For Fund of Funds Schemes (FoFs)
 
Similar to index fund and ETFs, if an FoF scheme is investing in a single fund, then a benchmark of the underlying scheme should be used for the corresponding FoF.
 
However, in case an FoF scheme invests in multiple schemes, then broad market index should be applied.
 
vii. For Other Schemes
 
Depending on underlying asset allocation, the broad market benchmark may be arrived at.
 
SEBI says it has asked the Association of Mutual Funds in India (AMFI) to publish benchmarks intended to be used by AMCs as first-tier benchmarks within one month from the date of issuance of its circular. Benchmarks are designed to be used as first-tier benchmarks by AMCs for open-ended debt schemes as per the potential risk class matrix on or before 1 December 2021.
 
The second-tier Benchmark is optional and should be decided by the AMCs according to the investment style or strategy of the index, SEBI says.
 
Comments
shaidermota
3 months ago
More importantly, once these indices are decided they should be available in the public domain so that Distributors can provide comparison of the funds with their respective benchmark indices to their Customers, thereby showing the fund performance in the right perspective.

Otherwise, if all the indices are not available in the public domain for free it will defeat the whole purpose of categorization and proper fund performance comparison.
Kamal Garg
Replied to shaidermota comment 3 months ago
I think "value research" website (valueresearchonline.com) will have the required category and sub-category wise analysis, comparison and reporting from the respective dates. Even amfiindia.com (i.e. amfi website) should also have the detailed format as mandated by SEBI.
PrakashPJoshi
3 months ago
This need was felt since long. Now the 'comparison' will be meaningful.
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