The Association of Portfolio Managers in India (APMI) has fixed the benchmarks for equity, debt, hybrid and multi-asset PMS strategies, which will be effective from April 1.
For equity strategies, Nifty50, S&P BSE Sensex 30 and MSEI SX 40 have been selected as the three benchmarks. For debt, hybrid and multi-asset strategies, Nifty Medium to Long-duration Debt Index, Nifty 50 Hybrid Composite Debt 50:50 Index and NSE Multi Asset Index are among the indices suggested.
Also read: ‘If you’re greedy in a bad market, you’ll most likely make money’; check Naveen Kulkarni’s top stock calls
“Some APMI participants have objected to this,” said a person in the know. “One benchmark for each category could have been more appropriate akin to what is prescribed for mutual fund schemes. This would have allowed each PMS provider to choose the relevant benchmark as per the strategy.”
APMI’s benchmarking and valuation committee considered the feedback received from portfolio managers and Sebi, industry data of existing benchmarks and that from the mutual fund industry and concluded that there were four broad methodologies for classifying and selecting the benchmark, based on market cap, style, theme and sector, the industry body said last week in a letter to portfolio managers.
“Given that the current task is to select only three benchmarks as defined by Sebi, the committee concluded that given the work flow, spectrum and the universe of data analysed, a market cap-based methodology is the most appropriate method for shortlisting the three benchmarks,” said the industry body.
There are a mind-boggling number of PMS schemes right now and fund managers are free to choose their own benchmarks. The current norms will help bucket the schemes based on the four strategies, each of which will have their own benchmarks. This will help customers assess the performance of the schemes better, according to experts.
Sebi came up with guidelines related to performance reporting and benchmarking by portfolio managers in December.
Also read: 6 Adani stocks hit lower circuit again, all group shares fall 2-5% today; why these scrips crashed
Managers have to adopt equity, debt, hybrid and multi-asset strategies. A portfolio manager may tag more than one investment approach (IA) to a strategy, but each IA must be tagged to only one strategy.
APMI was given the responsibility of prescribing a maximum of three benchmarks for each strategy, which will reflect its core philosophy. The manager has to select one benchmark from those prescribed for that strategy. This will enable investors to evaluate relative performance of portfolio managers.
Once an IA is tagged to a strategy and/or to a benchmark, the tagging shall be changed only after offering an option to subscribers to the IA to exit without any exit load.
Portfolio managers will present the time-weighted rate of return of the IA, along with the trailing return of the selected benchmark, when communicating the performance of an IA. Managers will present the extended internal rate of return while reporting the performance to an investor.
Portfolio managers have to disclose relative performance of their investment approach in every marketing material where performance of the concerned investment approach is presented. Such disclosure shall include performance relative to the selected benchmark and to other portfolio managers within the selected strategy.