What Is Total Return Index For Mutual Funds Benchmarking?

By Roshni Agarwal
Subscribe to GoodReturns
For Quick Alerts
Subscribe Now  
For Quick Alerts
ALLOW NOTIFICATIONS  
For Daily Alerts

    Through the circular dated January 4, 2018, SEBI has mandated all mutual fund houses to benchmark schemes against the total return index or TRI. Until now, fund houses had been using price return indices or PRIs while a few others including Edelweiss, DSP Blackrock switched to the worldwide adopted TRI benchmark on a more recent basis.

    What Is Total Return Index For Mutual Funds Benchmarking?

    Let us know about TRI in detail

    TRI or total return index offers a more holistic view of returns as it includes not just the capital gains or losses due to price gain or fall in components of the index but also accounts for any interest and other dividend amount realized over a given time period.
    With this measure in place for comparing a fund performance, a clearer alpha value can be arrived at. Alpha is a measure used to determine the fund's performance as to how much the fund has deviated in its performance against the expected.

    What goes wrong when PRI is used as a benchmark for evaluating fund performance?

    As the benchmark does not takes into account the dividend amount which can be in some of the cases being given by the constituent stocks, alpha value may provide with an overstated figure. This happens as the additional return on account of dividend income is not captured by the benchmark index.

    What benchmarking of mutual fund schemes against TRI means for investors?

    Blackrock said move towards TRI means towards "responsible and transparent communication with our advisors and investors and also sets high standards in investment management".

    Hence investors will be able to get a more precise information about their fund performance with their schemes tied to the total prices index benchmark. More rational comparison of fund performance can now be made and thereby a better evaluation of an investors' earnings from mutual funds.

    Goodreturns.in

    Company Search
    Enter the first few characters of the company's name or the NSE symbol or BSE code and click 'Go'

    Find IFSC

    Get Latest News alerts from Goodreturns

    We use cookies to ensure that we give you the best experience on our website. This includes cookies from third party social media websites and ad networks. Such third party cookies may track your use on Goodreturns sites for better rendering. Our partners use cookies to ensure we show you advertising that is relevant to you. If you continue without changing your settings, we'll assume that you are happy to receive all cookies on Goodreturns website. However, you can change your cookie settings at any time. Learn more