Executive Summary:
This circular from the Securities and Exchange Board of India (SEBI) outlines guiding principles for standardizing benchmarks for Mutual Fund schemes, introducing a two-tiered structure for certain categories. AMFI is advised to publish first-tier benchmarks for AMCs by specific deadlines: within one month for general benchmarks and by December 1, 2021, for open-ended debt schemes based on the Potential Risk Class Matrix. The framework takes effect on December 1, 2021, and January 1, 2022, respectively.
Key Points / Main Content:
Benchmark Structure:
* Introduces a two-tiered benchmark structure for specific scheme categories.
* First Tier: Reflects the scheme's category.
* Second Tier: Demonstrates the Fund Manager's investment style/strategy within that category and is optional.
* All benchmarks must be Total Return Indices.
First Tier Benchmark Guidelines:
* Income/Debt Oriented Schemes: One broad market index per index provider per category (e.g., NIFTY Ultra Short Duration Debt Index).
* Growth/Equity Oriented Schemes: One broad market index per index provider per category (e.g., S&P BSE 100 Index).
* Hybrid and Solution Oriented Schemes: Single broad market benchmark (where available) or bespoke benchmark.
* Thematic/Sectoral Schemes: Single benchmark, as characteristics are already defined.
* Index Funds/ETFs: Single benchmark replicating the underlying index.
* Fund of Funds (FoFs):
* Investing in a single fund: Benchmark of the underlying fund.
* Investing in multiple funds: Broad Market Index.
* Other Schemes: Broad Market benchmark based on underlying asset allocation.
AMFI Responsibilities:
* Publish benchmarks for AMCs' first-tier use within one month of the circular's date.
* Publish benchmarks for open-ended debt schemes' first-tier use based on the Potential Risk Class Matrix by December 1, 2021.
Effective Dates:
* Framework specified by AMFI (para 3a) is effective from December 1, 2021.
* Framework specified by AMFI (para 3b) is effective from January 1, 2022.
Impact Analysis:
Mutual Funds / Asset Management Companies (AMCs):
* Impact: Need to align scheme benchmarks with the new two-tiered structure. Must use benchmarks published by AMFI. Have the option to define a second-tier benchmark reflecting investment style.
* Action Required: Review current benchmark practices, adopt AMFI-published first-tier benchmarks, and decide on second-tier benchmarks (if applicable).
Trustee Companies / Boards of Trustees of Mutual Funds:
* Impact: Oversight responsibility to ensure AMCs comply with the new benchmarking guidelines.
* Action Required: Monitor AMCs' implementation of the new benchmark structure and ensure compliance.
Association of Mutual Funds in India (AMFI):
* Impact: Responsible for defining and publishing the first-tier benchmarks for AMCs.
* Action Required: Publish the required first-tier benchmarks within the specified timelines (within one month for general benchmarks, and by December 1, 2021, for open-ended debt schemes).
Key Entities Referenced
Securities and Exchange Board of India: Regulatory body issuing the circular regarding uniformity in benchmarks of Mutual Fund Schemes.
Mutual Funds: Investment vehicles that are the subject of the circular's benchmark standardization efforts.
Asset Management Companies: Entities responsible for managing mutual funds, also known as AMCs.
Association of Mutual Funds in India: Industry association (AMFI) tasked with publishing lists of acceptable first-tier benchmarks.
Mutual Fund Advisory Committee: Committee (MFAC) whose recommendations were considered in deciding the benchmark structure.
NIFTY Ultra Short Duration Debt Index: Example of a broad market index for Ultra Short Duration Fund Category.
CRISIL Ultra Short Term Debt Index: Another example of a broad market index for Ultra Short Duration Fund Category.
Securities and Exchange Board of India Act, 1992: Act under which the circular is issued, referencing the powers conferred to SEBI.
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Securities and Exchange Board of India
CIRCULAR
SEBI/HO/IMD/IMD-II DF3/P/CIR/2021/652 October 27, 2021
All Mutual Funds/
Asset Management Companies (AMCs)/
Trustee Companies/Boards of Trustees of Mutual Funds /
Association of Mutual Funds in India (AMFI)
Sir/ Madam,
Subject: Guiding Principles for bringing uniformity in Benchmarks of Mutual
Fund Schemes
1. In order to standardize and bring uniformity in the Benchmarks of Mutual Fund
Schemes and taking into account the recommendations of Mutual Fund
Advisory Committee (MFAC), it has been decided that there would be two-
tiered structure for benchmarking of schemes for certain categories of
schemes. 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 / strategy of the Fund Manager within the category. All the
benchmarks followed should necessarily be Total Return Indices.
2. The following are the guiding principles for first tier benchmarks:
i. For Income / Debt Oriented Schemes
First Tier: One Broad Market Index per Index Provider for each category
e.g.: 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/Strategy of the
Index e.g.: AAA Bond Index
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Securities and Exchange Board of India
ii. For Growth / Equity Oriented Schemes
First Tier: One Broad Market Index per Index Provider for each category
e.g.: 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
e.g.: 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 industry.
iv. For Thematic / Sectoral schemes:
There would be a single benchmark as characteristics of the schemes are
already tapered according to the theme/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 a FoF scheme is investing in a single
fund, then benchmark of the underlying scheme shall be used for
corresponding FoF.
However, in case a FoF scheme invests in multiple schemes, then Broad
Market Index shall be applied.
vii. For Other Schemes:
Depending on underlying asset allocation, Broad Market benchmark may
be arrived at.
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Securities and Exchange Board of India
3. AMFI is advised to publish:
(a) Benchmarks intended to be used by AMCs as first tier benchmarks within a
period of one month from the date of issuance of this circular.
(b) Benchmarks intended to be used as first tier benchmark by AMCs for open
ended debt schemes as per the Potential Risk Class Matrix on or before
December 1, 2021.
4. The second tier Benchmark is optional and shall be decided by the AMCs
according to Investment Style/Strategy of the Index.
Applicability of the circular
5. The framework specified by AMFI as referred at para 3(a) above shall come
into force with effect from December 1, 2021 and the framework specified by
AMFI as referred at para 3(b) above shall come into force with effect from
January 1, 2022.
6. This circular is issued in exercise of the powers conferred under Section 11 (1)
of the Securities and Exchange Board of India Act, 1992, read with the
provision of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996 to
protect the interests of investors in securities and to promote the development
of, and to regulate the securities market.
Yours faithfully,
Bithin Mahanta
General Manager
Tel no.: 022-26449634
Email: bithinm@sebi.gov.in
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