Mutual Funds to benchmark their returns against TRI

The regulator has come out with a new circular that asks asset management companies to benchmark their scheme’s performance to total return index (TRI). Currently the normal industry practice is to compare scheme’s performance to price return index (PRI), which only captures capital gains part of the index constituents. While TRI considers all the dividends and interest and of course capital gains.

This move will help investors compare their fund’s performance in a more objective way and take decision accordingly. Going one step ahead, SEBI has also asked fund houses to select appropriate benchmark that is aligned with investment objective, asset allocation and investment strategy of the scheme. The difference between TRI and PRI can be understood with the following example, which shows the difference in return generated by TRI and PRI in last one year.

Returns (%) Generated by Indices In Last One Year

The circular issued by SEBI is going to implemented from February 1, 2018. It will go a long way in attracting and making an investment in mutual funds more transparent. To know more about how TRI and PRI differ in terms of return and which investment style is going to impact more read our earlier story on the same subject.