Of debt, hybrid MFs, and their benchmarks

These funds normally follow benchmarks provided by Crisil, the NSE and ICICI-sec

Many of us are aware of the importance of the benchmarks while making investment decisions in mutual funds. In equity funds, we compare the performance of the scheme with well-known benchmarks such as Sensex, Nifty 50 and CNX Midcap 100 index.

The debt and hybrid mutual funds in India normally follow benchmarks provided by Crisil, the NSE and ICICI-sec. Access to information related to these benchmarks is restricted, as such data are available only in the fund documents and websites of AMCs and the index providers. These indices are designed to represent the performance of the respective fixed-income securities segments and act as standards againsts the performance of mutual funds.

Crisil indices

As per the data compiled from ACEMF database, of the 480 open-ended debt and hybrid funds, about 386 follow Crisil indices as their primary benchmark.

Crisil provides two types of indices — CRISIL-AMFI MF performance indices and Indian Fixed Income market indices.

CRISIL-AMFI MF performance indices were launched jointly by Crisil and AMFI, representing the performance of five categories — equity, ELSS, debt, money market and hybrid funds — derived by averaging the returns of the funds in a category. These indices are not used as benchmarks by any scheme.

The Fixed Income indices provided by Crisil are either standalone or composite, tracking the performance of a portfolio, comprising mostly liquid government securities, corporate and PSU bonds and money market instruments for varying maturities and credit risks.

The standalone index tracks the performance of a portfolio, comprising debt securities, while the composite index is derived from the sub-indices. For instance, ‘CRISIL AAA Long Term Bond Index’ is a standalone index that tracks the performance of long-term debt portfolio, consisting of AAA-rated corporate bonds. The index’s latest portfolio includes REC, IRFC and PFC.

An example of composite index is ‘CRISIL Composite Bond Fund Index’. The index portfolio is constituted by seven sub-indices, including CRISIL Composite Gilt Index (45 per cent weight), CRISIL AAA Long Term Bond Index (12 per cent), CRISIL AAA Short Term Bond Index (11 per cent) and CRISIL AA and AA+ Short Term Bond Index (3 per cent).

The other composite indices include CRISIL Short Term Bond Fund Index, CRISIL Liquid Fund Index and CRISIL Equity Savings Index.

Hybrid indices

CRISIL’s hybrid indices represent varying combinations of debt and equity. About 71 hybrid schemes follow the Crisil hybrid indices, including CRISIL Hybrid 35+65 - Aggressive Index (formerly CRISIL Balanced Fund Index), CRISIL Hybrid 85+15 - Conservative Index (formerly CRISIL MIP Blended index), CRISIL Arbitrage Index and CRISIL Equity Savings Index.

For instance, ‘CRISIL Hybrid 35+65 - Aggressive Index’ tracks the performance of an equity-oriented hybrid portfolio.

Other providers

NSE’s ‘NIFTY 50 Hybrid Composite Debt 65:35 Index’, followed by seven hybrid funds, measures the performance of hybrid portfolio having NIFTY 50 (65) and NIFTY Composite Debt Index (35). Five gilt funds follow ‘I-Sec Li-BEX’ as benchmark, which is maintained by ICICI Securities.

Our take

Following SEBI’s regulations on re-categorisation of mutual funds, debt schemes have been realigned into 16 categories based on their investment approaches. This has resulted in a major re-jig in holdings among debt funds.

Even as Crisil and other benchmark providers bring in new indices to suit the strictly tailored debt fund categories, comparison of past returns will be difficult. Hence, along with the benchmark comparison, the debt fund investors can also compare bank FD rates or yields of G-secs, based on risk profiles and time horizon for goals.

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