Jargon Buster - Total return index

Total return index (TRI) is an index that measures the performance of a group of components (say, equities or debt instruments) by assuming that all cash distributions are reinvested, in addition to tracking the components’ price movements.

In other words, it measures performance, reflecting the actual rate of return of an investment or a pool of investments over a given period.

And it includes interest, capital gains, dividends and distributions realised over a given period of time from such pool of investments.

Globally, TRI is viewed as a strong measure to reflect the actual out-performance over benchmark returns by a mutual fund scheme.

However, in India, most of the mutual fund schemes use the price index (be it of Sensex or Nifty 50) and not TRI.

In a way, it gives a slight advantage to fund managers, since they will be incorporating the dividends, interest and other distributions in their fund return calculations.

Recently, DSP BlackRock Investment Managers moved towards benchmarking TRI for its mutual fund schemes in India.

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