Two-Tier Benchmarking

Sebi’s new ruling on two-tier benchmarking, which becomes effective from January 1, 2022, aims at bringing uniformity in comparing the performance of mutual fund schemes within a single category. What Is Two-Tier Benchmark? Till now, each scheme had a single benchmark from its category. Now most open-ended schemes will have two benchmarks The first-tier benchmark shall be reflective of the scheme’s category. For example, this benchmark will reflect the broader category index, such as the S&P BSE 100 index or NSE 100 index, for large-cap funds The second-tier benchmark is optional and can be chosen by the fund house It can be a ‘bespoke’ benchmark, chosen by the fund house and demonstrative of the investment style or strategy of the scheme. For instance, for large-cap funds, the fund house could choose the Nifty 50 index Thematic or sectoral schemes, index...