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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Performance

Which statement about comparing a scheme's performance with its benchmark is correct?

The Total Return Index is the right basis for benchmark comparison. It includes reinvested dividends from the index constituents, so it is a like-for-like measure against a scheme's NAV return, which also reflects dividends earned by the fund.

  1. AA scheme should be compared to a benchmark with a different asset mix to show diversification benefit
  2. BTotal Return Index (TRI), which includes dividends reinvested, is the appropriate benchmark basis for comparisonCorrect
  3. CThe benchmark should be chosen by the distributor each year based on the best recent performance
  4. DPrice-return indices are preferred as they include the effect of dividends

Explanation

SEBI requires scheme performance to be compared against the Total Return Index variant of the benchmark, because it captures dividends from constituent stocks. Benchmarks must match the scheme's investment mandate and are not changed to flatter results. Price indices exclude dividends.

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