NISM_VA_Ch_11_Mutual Fund Scheme Performance

NISM VA Chapter 11 – Mutual Fund Scheme Performance July 13, 2022

Learning Objectives Learn About: • Concept of Benchmarks and Performance in case of mutual funds • Difference between Price Returns Index versus Total Returns Index • Basis of Choosing an appropriate performance benchmark • Benchmarks for Equity Schemes, Debt Schemes AND Other Schemes • Quantitative measures of fund manager performance • Sources to track mutual fund performance and Scheme Performance Disclosures

Benchmarks & Performance An entity against which the A credible benchmark should Benchmark to be calculated performance of a scheme can be in sync with: by an independent agency be compared and published regularly • Investment objective of the scheme • Asset allocation pattern • Investment strategy of the scheme 3

Benchmark Choice of Benchmark is Offer Document has to benchmark is decided by AMC in mention the benchmark subjective consultation with the trustee At a later stage the W.E.F 1st Feb benchmark can be 2018, the Total changed by AMC in Return variant of an Index (TRI) is consultation with trustees, and it needs to used, which considers be justified & dividends / documented interest along with capital gains 4

Benchmark For Equity Schemes Scheme Type: • Diversified - S&P BSE Sensex, Nifty 50, BSE 200, BSE 500, Nifty 100, Nifty 500 • Sectoral/Thematic - S&P BSE Bankex, FMCG Index 01 Choice of portfolio concentration: Choice of Investment Universe: • Fewer Stocks - S&P BSE 03 02 • Large Cap - S&P BSE Sensex, Sensex, Nifty 50 Nifty 50, • Number of companies - S&P • Mid Cap - S&P BSE Midcap, Nift Midcap 50 BSE 100, Nifty 100, BSE 200, Nifty 200, BSE 500, Nifty 500, Investment objective drive the choice of benchmark 5

Benchmark For Debt Schemes As per SEBI guidelines, the benchmark for debt (and balanced schemes) should be developed by research and rating agencies recommended byAMFI • Liquid - NSE’s MIBOR, • Gilt - Indices based on Govt CRISIL Liquid Fund Index SCHEME CHOICE OF Securities • Non-liquid - Can choose TYPE depending upon nature of INVESTMENT • Debt Funds - Benchmarks based portfolio UNIVERSE on diverse mix of debt Investment objective drive the choice of benchmark 6

Benchmark For Debt Schemes 01 NSE’s MIBOR (Mumbai Inter-Bank Offered Rate) 05 02 is based on short term money market 04 03 Nifty Composite G-Sec Index / Nifty 4-8 Index G- Sec/Nifty 10 Year benchmark G-Sec Index S&P BSE India Sovereign Bond Index / S&P BSE India Govt. Bill Index ICICI Securities’ Sovereign Bond Index (I-Bex) SI-BEX (1-3 years) | MI-BEX (3-7 years) | LI-BEX (more than 7 years) 7

Benchmark For Other Schemes: Hybrid Schemes SEBI Category Index Debt Index Equity Index Aggressive Hybrid CRISIL Hybrid CRISIL Composite S&P BSE 200 (TRI) Fund 25+75 - Bond Fund Index [75% Allocation] Aggressive Index [25% Allocation] Balanced Hybrid CRISIL Hybrid CRISIL Composite S&P BSE 200 (TRI) Fund 50+50 Bond Fund Index [50% Allocation] - Moderate Index [50% Allocation] Conservative Hybrid CRISIL Hybrid CRISIL Composite S&P BSE 200 (TRI) Bond Fund Index [25% Allocation] Fund 75+25 - [75% Allocation] Conservative Index 8

Benchmark For Other Schemes Gold ETF International Real Estate Funds Funds 9

Quantitative Measures Of Fund Manager’s Performance Absolute Returns & Relative Returns Risk Adjusted Returns • Sharpe Ratio • Treynor Ratio • Jensen Ratio(Alpha) • Tracking Error 10

Scheme Performance Disclosure Suitability 1 2 Returns Portfolio Description 4 Fund Factsheets 3 11

Metrics Of Analysis In Factsheet Inflation Level Commodity Changes in the prices & prices of level ofinterest Government other inputs such spending as raw materials rates and labour Activity of domestic & foreign portfolio Investors Corporate GDP Numbers results Economic Level of market & interest rate indices and yields data from overseas economies 12

Summary: • A credible benchmark should meet the following requirements: It should be in sync with (a) the investment objective of the scheme (b) asset allocation pattern (c) investment strategy of the scheme. • The benchmark should be calculated by an independent agency in a transparent manner, and published regularly • Selection of a benchmark for the scheme of a mutual fund to be in alignment with the investment objective, asset allocation pattern and investment strategy of the scheme.

Thank you