Policy framework for Composition of Benchmark of Multi Asset Allocation Fund Category

Considering that multi asset funds allocation schemes of different fund houses may have varied underlying asset allocation,  rather than prescribing a single broad market benchmark index or a single bespoke index which would be applicable across industry, the following broad principles are laid down:

1)      The benchmark should compulsorily represent all the asset classes in the scheme, where the minimum allocation of a scheme is 10% or more.

2)      Additionally, the weightages of these benchmarks should be at least the minimum of the asset allocation range of that particular asset class. For example, if the asset allocation range for equity and equity-related instruments is 65-80%, the benchmark weight should be a minimum of 65% of the equity index.

3)      AMCs are advised to use an appropriate combination of the broad indices that represent each asset class as mentioned below:

(i)Broad Equity Indices (Min 10% Weight) (includes Domestic & International Equities)

(ii)Broad Fixed Income Indices (Min 10% Weight)

  (iii)     Commodity Indices (Min 10% Weight)

4)      Additionally, AMCs need to ensure the following requirements (as advised by SEBI):

1. While constructing the benchmark for a multi asset allocation scheme, once a benchmark index is selected a particular asset class, the same should not be changed. For example – if for equity asset class, NIFTY 500/Sensex 500 is chosen, it should not be changed on an ad-hoc basis by the AMC and may be changed only after following a due process including prior intimation/ approval of SEBI.
2. Likewise, once weights of each asset class for constructing the benchmark of a scheme is decided by an AMC, the AMC may not change the weights without following due process including prior intimation/ approval of SEBI.
3. The weights of each asset class in the benchmark may be allotted suitably based on Scheme Information Document/ Investment Pattern of Scheme. For example, it should not happen that while the actual investment in debt by the scheme is generally 10%, the benchmark weight for the debt index is 50%.
4. Further, the respective benchmark to be used for each asset class should be only from the aforesaid limited set of Indices mentioned hereinabove.