Mutual funds can now choose to have two benchmarks for their debt and equity schemes — one for comparing performance with uniform benchmark and another for comparing how investment style has fared.
Overall, the first benchmark will likely to be uniform across scheme category. For instance, if AMFI directs AMCs to follow Nifty 100 Index for large cap funds, they will have to benchmark their large cap scheme with Nifty 100 Index.
The second benchmark will be independent and it will largely depend on the style the fund follows. For instance, value funds have to follow a benchmark that consists of value stocks. Since Indian markets do not have style specific benchmark, AMCs can decide the second benchmark on their own.
"It has been decided that there would be two-tiered structure for benchmarking of schemes for certain categories of schemes," SEBI said in a circular on Wednesday, adding that the second benchmark will be optional.
For example, large cap funds can have Nifty 50 Index and ultra-short duration funds can have AAA Bond Index as benchmarks for investment style.
The regulator said other scheme categories like hybrid, thematic and index funds won't require the second benchmark.
To bring uniformity in use of first benchmarks, SEBI has asked AMFI to specify benchmarks for each scheme category by November 27, 2021. The regulator also asked AMFI to release a list of benchmarks as per the Potential Risk Class Matrix by December 1, 2021.
AMCs will have to adopt benchmarks recommended by AMFI for each scheme category by December 1, 2021. The benchmarks as per risk class matrix will have to be adopted by January 1, 2022.
