Scheme performance vs benchmark report for mutual funds

A scheme performance vs benchmark report is the standardised comparative return disclosure that SEBI requires every mutual fund scheme to publish, showing the scheme’s point-to-point and CAGR (Compounded Annual Growth Rate) returns alongside the returns of its primary benchmark and an additional benchmark over specified standard periods. This disclosure is embedded in the scheme factsheet, the scheme annual report, and the performance tables on AMFI’s website, enabling investors to assess whether the scheme has added value over passive investing in the benchmark.

Regulatory basis

SEBI circular SEBI/HO/IMD/DF3/CIR/P/2021/571 dated 7 April 2021 overhauled the performance disclosure requirements for mutual fund schemes. Key changes included:

• Mandatory use of the Total Return Index (TRI) variant of the benchmark, which reinvests dividends, replacing the earlier Price Return Index (PRI) benchmarks
• Introduction of an additional benchmark (typically the Nifty 50 TRI or CRISIL Composite Bond Fund Index TRI, as appropriate) to provide a broader comparison
• Uniform performance calculation methodology: CAGR for lump-sum returns; XIRR for SIP returns
• Mandatory disclosure of both the Direct Plan and the Regular Plan returns for the same scheme

Earlier SEBI circular SEBI/HO/IMD/DF3/CIR/P/2017/114 (scheme categorisation, 2017) required that each scheme be benchmarked against a category-appropriate index; random or self-constructed benchmarks were disallowed.

Standard comparison periods

SEBI mandates performance disclosure for:

• 1 year: Point-to-point return from the same date one year prior
• 3 years: Annualised CAGR from three years prior
• 5 years: Annualised CAGR from five years prior
• Since inception: Annualised CAGR from the scheme’s NFO date

If the scheme has not yet completed one or more of these periods, the shorter periods are omitted and the fact is noted. For example, a scheme launched in 2022 will not show a 5-year return in a 2024 factsheet.

TRI benchmark requirement

The TRI (Total Return Index) assumes that all dividends paid by index constituent stocks are reinvested back into the index portfolio. Before the 2018 SEBI circular (CIR/IMD/DF3/CIR/P/2018/55), most Indian schemes were compared against the PRI (Price Return Index), which ignores dividends. Because equity indices paid 1–2% in dividend yields annually, comparing against the PRI made schemes appear to outperform by 1–2% per year without any genuine alpha. The mandated switch to TRI benchmarks raised the bar for reported outperformance.

Additional benchmark

The additional benchmark is a broad-market or category-representative index that places the primary benchmark itself in context. For example:

• A mid-cap fund’s primary benchmark might be the Nifty Midcap 150 TRI; its additional benchmark is the Nifty 500 TRI.
• A short-duration debt fund’s primary benchmark might be the CRISIL Short Duration Debt B-I Index; its additional benchmark might be the CRISIL 1-Year T-Bill Index.

The two-benchmark format allows investors to see not only how the fund performed against its category benchmark but also how that category benchmark itself performed against the broad market.

SIP return disclosure

For equity schemes, SEBI also requires disclosure of the return an investor would have earned from a monthly SIP of Rs 10,000 for the standard periods (1 year, 3 years, 5 years, since inception). The SIP return is computed as the XIRR of the SIP cash flows (monthly instalments as outflows, and the final corpus as the inflow). This disclosure is specifically intended for retail investors who invest via SIPs rather than lump sums.

Where to find performance disclosures

• Factsheet: The most commonly accessed source; published monthly by each AMC.
• AMFI website: AMFI’s performance dashboard at amfiindia.com aggregates scheme-level point-to-point returns for all schemes across AMCs.
• Scheme annual report: Contains performance tables for the full financial year and standard historic periods.
• New Fund Offer documents: For NFOs, no historic performance exists; the AMC must show the performance of the fund manager’s other schemes as a proxy.

Interpreting the performance report

Alpha and outperformance

Outperformance (positive alpha) relative to the TRI benchmark over a 5-year or longer period is a meaningful signal of active management skill, net of fees. However, one-year outperformance can arise from luck or style tilts. Most academic studies suggest that consistent multi-year outperformance relative to TRI benchmarks is rare for large-cap equity funds, which is one rationale for the growth of index funds.

Expense ratio drag

The scheme’s return is net of the expense ratio. The difference between a Direct Plan’s return and a Regular Plan’s return for the same scheme equals roughly the distributor commission embedded in the Regular Plan’s expense ratio, compounded over the period.

Benchmark selection bias

Prior to SEBI’s 2017 scheme categorisation circular, some AMCs used self-constructed or inappropriate benchmarks that the scheme could easily beat. The 2017 and 2021 SEBI circulars significantly reduced this practice by mandating AMFI-approved benchmarks for each category.

See also

• AMFI scheme factsheet
• Annual report of MF scheme
• Monthly portfolio disclosure
• Mutual fund
• SEBI
• AMFI – Association of Mutual Funds in India

References

1. SEBI circular SEBI/HO/IMD/DF3/CIR/P/2021/571, 7 April 2021 – Performance disclosure overhaul.
2. SEBI circular CIR/IMD/DF3/CIR/P/2018/55, 4 April 2018 – Transition to TRI benchmarks.
3. SEBI circular SEBI/HO/IMD/DF3/CIR/P/2017/114, 6 October 2017 – Scheme categorisation.
4. AMFI performance reporting standards (current edition).