Mutual Fund Scheme Performance

The benchmark for a scheme is decided by the AMC in consultation with the trustees. The Scheme Information Document has to mention the benchmark.

The mutual fund schemes are benchmarked to the Total Return variant of an Index (TRI). The Total Return variant of an index 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.

The gap between the returns of PRI (Price Return Index) and TRI is the amount of dividend.

As per the SEBI guidelines, the benchmark for debt (and balanced schemes) should be developed by research and rating agencies recommended by AMFI. CRISIL, ICICI Securities and NSE have developed various such indices.

Risk adjusted returns are calculated by sharpe ratio, treynor ratio, Alpha

• In sharpe ratio, Risk premium is divided by standard deviation
• In treynor ratio, Risk premium is divided by Beta
• The difference between a scheme’s actual return and its optimal return is its Alpha

Tracking error is a measure of the consistency of the out-performance of the fund manager relative to the benchmark. It is used to measure how consistently a fund is able to out-perform its benchmark.

A snapshot of the suitability of the product can be assessed from the product labels that have to be provided with any product literature.

The fund factsheets are an official source of information of the fund’s objective, performance, portfolio and basic investment requirements issued by the fund house each month.