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12.5 Benchmarks for Debt Schemes and Other Schemes

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NISM-Series-V-A: Mutual Fund Distributors Certification Examination Exam

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1 Chapter 1: Introduction & Exam Overview

1.1 About the NISM-Series-V-A Examination 1.2 The 12-Unit Curriculum Map and a Study Plan

2 Chapter 2: Investment Landscape

2.1 Investors and Their Financial Goals 2.2 Savings or Investments? 2.3 Different Asset Classes 2.4 Investment Risks 2.5 Risk Measures and Management Strategies 2.6 Behavioural Biases in Investment Decision Making 2.7 Risk Profiling 2.8 Asset Allocation and Do-It-Yourself versus Professional Help

3 Chapter 3: Concept and Role of a Mutual Fund

3.1 Concept of a Mutual Fund 3.2 Classification of Mutual Funds 3.3 Growth of the Mutual Fund Industry in India

4 Chapter 4: Legal Structure of Mutual Funds in India

4.1 Structure of Mutual Funds in India 4.2 Key Constituents of a Mutual Fund 4.3 AMC Organisation Structure and Service Providers 4.4 Role and Function of AMFI

5 Chapter 5: Legal and Regulatory Framework

5.1 Role of Regulators in India 5.2 Role of SEBI and the Mutual Fund Regulations 5.3 Due Diligence Process by AMCs for Distributors 5.4 Investor Grievance Redress Mechanism 5.5 AMFI Code of Conduct for Intermediaries

6 Chapter 6: Scheme Related Information

6.1 Mandatory Documents I: Scheme Information Document and Statement of Additional Information 6.2 Mandatory Documents II: Key Information Memorandum and the Advertisement Code 6.3 Non-Mandatory Disclosures

7 Chapter 7: Fund Distribution and Channel Management Practices

7.1 The Role and Importance of Mutual Fund Distributors 7.2 Different Kinds of Mutual Fund Distributors 7.3 Modes of Distribution 7.4 Pre-requisites to Become a Distributor of a Mutual Fund 7.5 Revenue for a Mutual Fund Distributor 7.6 Commission Disclosure Mandated by SEBI 7.7 Distributors versus Investment Advisers, Nomination Facilities and Change of Distributor

8 Chapter 8: Net Asset Value, Total Expense Ratio and Pricing of Units

8.1 Fair Valuation Principles 8.2 Computation of Net Assets of a Scheme and NAV 8.3 Dividends and Distributable Reserves 8.4 Entry and Exit Load and Its Impact on NAV 8.5 The Expense Ratio Framework: Base Expense Ratio, Brokerage and Statutory Levies 8.6 Key Accounting and Reporting Requirements 8.7 NAV, Total Expense Ratio and Pricing of Units for the Segregated Portfolio

9 Chapter 9: Taxation

9.1 Applicability of Taxes in Respect of Mutual Funds 9.2 Capital Gains on Mutual Fund Units 9.3 Dividend (IDCW) Income and Tax Deducted at Source 9.4 Stamp Duty and Securities Transaction Tax on Mutual Fund Units 9.5 Setting Off Capital Gains and Losses under the Income Tax Act 9.6 Tax Benefit under Section 80C and Applicability of GST

10 Chapter 10: Investor Services

10.1 The New Fund Offer Process 10.2 New Fund Offer Price and Ongoing Offer Price for Subscription 10.3 Investment Plans and Services 10.4 Allotment of Units and Account Statements 10.5 Mutual Fund Investors: Who Can Invest 10.6 Filling the Application Form for Mutual Funds 10.7 Financial Transactions with Mutual Funds 10.8 Cut-Off Time and Time Stamping 10.9 KYC Requirements for Mutual Fund Investors 10.10 Systematic Transactions and Their Operational Aspects 10.11 Non-Financial Transactions, Special Investor Categories and Turnaround Times

11 Chapter 11: Risk, Return and Performance of Funds

11.1 General and Specific Risk Factors 11.2 Factors That Affect Mutual Fund Performance 11.3 Drivers of Returns and Risk in a Scheme 11.4 Measures of Returns 11.5 SEBI Norms Regarding Representation of Returns 11.6 Risks in Fund Investing: The Investor's Perspective 11.7 Measures of Risk and Provisions Relating to Credit Risk

12 Chapter 12: Mutual Fund Scheme Performance

12.1 Benchmarks and Performance 12.2 Price Return Index or Total Return Index 12.3 Basis of Choosing an Appropriate Performance Benchmark 12.4 Benchmarks for Equity Schemes 12.5 Benchmarks for Debt Schemes and Other Schemes 12.6 Quantitative Measures of Fund Manager Performance 12.7 Tracking Error and Scheme Performance Disclosure

13 Chapter 13: Mutual Fund Scheme Selection

13.1 Scheme Selection Based on Investor Needs, Preference and Risk Profile 13.2 Risk Levels in Mutual Fund Schemes 13.3 Scheme Selection Based on Investment Strategy 13.4 Selecting a Scheme Across AMCs or Within a Scheme Category 13.5 Selecting Options in Mutual Fund Schemes and Do's and Don'ts

12.5 Benchmarks for Debt Schemes and Other Schemes

Key Takeaways Explain This Topic AI

Debt benchmarks are matched to the scheme's duration band and credit quality.

Gilt schemes use government securities indices, and corporate bond schemes use corporate bond indices.

Liquid and overnight schemes use very short-tenor money market indices.

Hybrid schemes use composite indices blending equity and debt in the mandated proportion.

Index funds and ETFs are benchmarked against the index they track, and gold schemes against domestic gold prices.

Last updated: August 2026

Two Dimensions for Debt

An equity benchmark is matched principally on market capitalisation . A debt benchmark must be matched on two dimensions simultaneously:

  • Duration — the interest-rate sensitivity of the mandate
  • Credit quality — the rating profile the scheme is permitted to hold

A mismatch on either produces a meaningless comparison. Benchmarking a credit risk fund against a gilt index rewards it for taking credit risk; benchmarking a short duration fund against a long duration index rewards or punishes it for a duration position it was never permitted to take.

Benchmarks by Debt Category

  • Category Mandate Benchmark type
  • Overnight Securities maturing in one day Overnight rate index
  • Liquid Up to 91 days Liquid or money market index
  • Ultra short duration Macaulay duration 3 to 6 months Ultra short duration debt index
  • Low duration Macaulay duration 6 to 12 months Low duration debt index
  • Money market Money market instruments up to 1 year Money market index
  • Short duration Macaulay duration 1 to 3 years Short duration debt index
  • Medium duration Macaulay duration 3 to 4 years Medium duration debt index
  • Long duration Macaulay duration over 7 years Long duration debt index
  • Corporate bond Minimum 80% in highest-rated corporate bonds Corporate bond index of comparable rating
  • Credit risk Minimum 65% in below-highest-rated corporate bonds Credit risk debt index
  • Banking and PSU Minimum 80% in bank, PSU and PFI debt Banking and PSU debt index
  • Gilt Minimum 80% in government securities Government securities index of comparable maturity
  • Floater Minimum 65% in floating rate instruments Floating rate index
  • Sectoral debt Minimum 80% in debt of a single sector Sector-specific debt index

The Sectoral Debt Fund category was introduced by SEBI's revised categorisation, requiring at least 80% in debt of a single sector such as financial services, energy, infrastructure, housing or real estate, and predominantly high-rated paper. Its benchmark must reflect that sector rather than the broad debt market.

Why the Duration Match Matters So Much

Debt returns are driven by accrual plus price change, and price change scales with duration. Two schemes with identical credit quality but different duration behave completely differently in the same rate environment.

Illustration. Yields fall 0.75% across the curve. Short duration fund, modified duration 2.0 -> price gain approx 1.5%

Long duration fund, modified duration 8.0 -> price gain approx 6.0%

Comparing the short duration fund against a long duration benchmark would show a 4.5 percentage point shortfall that reflects nothing but the mandate. The manager was required to stay short.

Hybrid Schemes: Composite Benchmarks

A hybrid scheme requires a benchmark blending equity and debt in the mandated proportion.

  • Category Mandate Composite benchmark
  • Conservative hybrid 10% to 25% equity Roughly 15% equity index, 85% debt index
  • Balanced hybrid 40% to 60% equity Roughly 50% equity index, 50% debt index
  • Aggressive hybrid 65% to 80% equity Roughly 65% to 75% equity index, balance debt index
  • Equity savings Equity, arbitrage and debt A composite reflecting the three sleeves
  • Arbitrage Arbitrage opportunities A short-tenor debt or arbitrage index

Dynamic asset allocation and balanced advantage schemes are the difficult case. Because equity exposure varies with a model, no fixed blend describes the mandate at all times. A composite benchmark is still prescribed, but the comparison is inherently looser, and a distributor should understand that outperformance or underperformance in such a scheme partly reflects where the model happened to be positioned.

Other Schemes

  • Scheme Benchmark
  • Index fund The index it tracks, on a total return basis
  • ETF The index it tracks, on a total return basis
  • Gold ETF or gold fund of funds Domestic price of physical gold
  • Silver ETF or silver fund of funds Domestic price of physical silver
  • International fund of funds The relevant overseas index, adjusted for currency
  • Fund of funds, domestic A composite reflecting the underlying schemes' allocation
  • Life Cycle Fund A benchmark reflecting the glide path applicable at that stage

Gold and silver schemes are benchmarked against the domestic price rather than the international one, because the domestic price incorporates the rupee-dollar rate and applicable import duties, and it is the domestic price that the scheme's holdings actually track.

International schemes must be assessed on a currency-adjusted basis. A scheme that lagged the foreign index in local currency terms may have outperformed in rupee terms, or the reverse, depending on how the rupee moved.

Life Cycle Funds , introduced in SEBI's revised categorisation, follow a glide path from equity towards debt as the target maturity year approaches. Their benchmark must reflect the allocation applicable at the relevant stage, so the appropriate blend changes over the scheme's life.

Applying This in Practice

When assessing any debt scheme, check three things in the fact sheet before looking at the return:

Modified duration — is the scheme positioned as its category requires?

Rating profile — is the credit quality what the benchmark assumes?

Yield to maturity — is it consistent with that duration and rating profile, or unusually high?

A return figure examined without those three is a number whose cause is unknown, and a scheme's outperformance is only interesting once you know whether it came from skill or from taking risk the benchmark does not carry.