APMI/2023-24/04 Date: 28th April,2023
To,
All Portfolio Managers registered with SEBI
Dear Sir / Madam,
Subject: Reporting of performance for periods where BSE 500 TRI Index values are not available.
- This is further to the responsibility conferred on APMI vide SEBI circular SEBI/HO/IMD/IMD-PoD-2/P/CIR/2022/172 dated December 16, 2022 on Performance Benchmarking and Reporting of Performance by Portfolio Managers.
- APMI had specified the indices to be used for benchmarking under the various categories vide circular number APMI/2022-23/02 dated 23rd March,2023, and subsequently modified on March 31, 2023.
- One of the indices specified by APMI for the Equity Category is the S&P BSE 500 which has a total return series history of about 15 years only and to address this issue post the discussions held in our committees, APMI made a submission with SEBI on 25th April’2023 (Annexure 1).
- Post discussions with the regulator, we have received a confirmation that Portfolio Managers can use a composite CAGR figure of the performance of the PRI benchmark (till the date from which TRI is available) and the TRI (subsequently) to compare the performance of their scheme in case TRI is not available for that particular period(s).”
We hope this clarification will be helpful towards execution of the circular.
Yours Sincerely,
Rashim Bagga
Principal Officer- Association of Portfolio Managers of India
Encl 1: APMI Submission to SEBI
Encl 2: SEBI Circular dated 4th Jan’2018
Annexure 1
25th April’2023 To: Securities & Exchange Board of India, IMD
Subject: Reporting of performance for periods where BSE 500 TRI Index values are not available.
Pursuant to the responsibility conferred on us by SEBI circular SEBI/HO/IMD/IMD-PoD2/P/CIR/2022/172 dated December 16, 2022 on Performance Benchmarking and Reporting of Performance by Portfolio Managers, APMI had specified the indices to be used for benchmarking under the various categories vide circular number APMI/2022-23/02 dated 23rd March,2023, and subsequently modified on March 31, 2023.
- The APMI circular specified that portfolio managers must use the Total Return Index (TRI) for all equity indices.
- One of the indices specified by APMI for the Equity Category is the S&P BSE 500 which has a total return series history of about 15 years.
- Portfolio managers who have been in existence for a period longer than this- have raised concerns about it.
- In this context SEBI circular SEBI/HO/IMD/DF3/CIR/P/2018/04 dated January 4, 2018 provided clarity on how this is to be tackled by the mutual fund industry.
a. The said circular states that:
“Mutual funds shall use a composite CAGR figure of the performance of the
PRI benchmark (till the date from which TRI is available) and the TRI (subsequently) to compare the performance of their scheme in case TRI is not available for that particular period(s).”
We hereby submit that the same method may be used by the Portfolio Managers and seek your guidance for issuing a clarification to the PM Industry to this effect.
Please find attached herewith all circulars for ready reference.
Warm Regards, For Association of Portfolio Managers in India
Principal Officer
- This document has been prepared with the combined views & thoughts of the members of the APMI Benchmarking & Valuation Committee.
- Post which this document as taken up with the Board of Directors of APMI for their approval.
- Post the approval of the APMI Board, this document is getting submitted SEBI for a discussion & guidance.
CIRCULAR
SEBI/HO/IMD/DF3/CIR/P/2018/04 January 4, 2018
All Mutual Funds/Asset Management Companies /
Trustee Companies/Boards of Trustees of Mutual Funds/ AMFI
Sir/ Madam,
Subject: Benchmarking of Scheme’s performance to Total Return Index
- Mutual Funds are required to disclose the name(s) of benchmark index/indices with which the AMC and trustees would compare the performance of the scheme in scheme related documents.
- At present, most of the mutual fund schemes (other than debt schemes) are benchmarked to the Price Return variant of an Index (PRI). PRI only captures capital gains of the index constituents. On the other hand, Total Return variant of an Index (TRI) takes into account all dividends/ interest payments that are generated from the basket of constituents that make up the index in addition to the capital gains. Hence, TRI is more appropriate as a benchmark to compare the performance of mutual fund schemes.
- With an objective to enable the investors to compare the performance of a scheme visà-vis an appropriate benchmark, it has been decided that:
(a) Selection of a benchmark for the scheme of a mutual fund shall be in alignment with the investment objective, asset allocation pattern and investment strategy of the scheme.
(b) The performance of the schemes of a mutual fund shall be benchmarked to the Total Return variant of the Index chosen as a benchmark as stated in para (a) above.
(c) (i) Mutual funds shall use a composite CAGR figure of the performance of the PRI benchmark (till the date from which TRI is available) and the TRI (subsequently) to compare the performance of their scheme in case TRI is not available for that particular period(s).
(ii) The calculation of composite CAGR is elaborated with an example in the following paragraph.
For instance, ABC scheme had been launched on August 2, 1995. The benchmark PRI values are available from the date of inception of the fund. The benchmark TRI values are available from June 30, 1999. The calculation of a composite benchmark performance return in CAGR terms would be as given below:
The aforesaid is explained with an example:
Example: Consolidated Benchmark CAGR (PRI and TRI) | ||
Date | Benchmark PRI values | Benchmark TRI values |
02/08/1995 | 1007.57 |
|
30/06/1999 | 1187.70 | 1256.38 |
30/11/2017 | 10226.55 | 13966.58 |
CAGR | 12.20% | |
Thus, in the above example (for advertisements in the month of December, 2017 the last of the preceding month would be November 30, 2017),
CAGR= [(1187.70/1007.57)*(13966.58/1256.38) ^ (1/22.3452)]-1
[1 year= 365 days]
CAGR= 12.20%
(iii) Mutual funds shall use the composite CAGR as explained above, subject to making the following disclosure:
*As TRI data is not available since inception of the scheme, benchmark performance is calculated using composite CAGR of XYZ (name of the benchmark index) PRI values from date…. to date… and TRI values since date….”
4. This circular is applicable to all schemes of Mutual Funds with effect from February 1, 2018.
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,
DEENA VENU SARANGADHARAN
Deputy General Manager
Tel no.: 022-26449266
Email: [email protected]
