When will mutual funds start being benchmarked against Total Return Indices?
- Dalmia
This is a recent change by SEBI that every fund should be benchmarked against total return. I would like to use this opportunity to explain what Total Return Index is. The Sensex that you see in the television or newspapers, does not assume all the dividends that will accrue to all the underlying companies. So, there is a total return variant of that which assumes the re-investment of it. As an investor you have access not only to the change in the stock price but also to the dividend paid by those companies. That difference in the total return and the return of the raw index is about 2 per cent per annum on an average. It can vary over time but generally Total Return Index is 2 per cent high. This should happen shortly, say, in two months time because every index provider is calculating the total return variant of its index. So, may be in two months time it will be made public and will be available for public consumption and fund companies. After that, even the index funds will have to abide by them.
This article was originally published on February 23, 2018.
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