Recently, DSP Black Rock Mutual Fund made a very interesting decision- moving their benchmark to Total Return (TR) Index. It’s a praiseworthy move considering the benefit of having TR index as benchmark. Globally, S&P 500 is based on total return index and here BSE Sensex and Nifty do have TR Indices. But, until now, price-based index was followed for the purpose of benchmarking. As a large mutual fund makes a switch, it will be interesting to understand as an investor how this moves makes a difference to your investments.
The TR index
An index in general is a basket of securities and any change in the index value is actually the cumulative change in the prices of these securities. A price-based index captures the movement of prices but leaves the dividends and interest earned from these securities. The total return index is contrary to this. It captures not only the movement of prices but also the dividend or interest earned and is assumed to be reinvested in the security. So the total return index has two variants deriving the returns:
