12.4 Benchmarks for Equity Schemes

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

12.4 Benchmarks for Equity Schemes

Key Takeaways Explain This Topic AI

Equity benchmarks are matched to the scheme's market capitalisation segment.

Large cap schemes use indices of the top 100 companies, mid cap schemes the next 150.

AMFI's half-yearly classification list determines which companies fall in each segment.

Sectoral and thematic schemes are benchmarked against the index for that sector or theme.

All equity benchmark comparisons must use the Total Return Index version.

Last updated: August 2026

The Capitalisation Foundation

Equity benchmarking rests on AMFI's half-yearly classification list , which every AMC must use:

Segment Definition
Large cap 1st to 100th company by full market capitalisation
Mid cap 101st to 250th company
Small cap 251st company onwards

The list is revised half-yearly on the basis of average market capitalisation over the preceding six months, and schemes are given a defined window to realign portfolios after each revision. Because every fund house uses the same list, a company is large cap for the whole industry simultaneously.

Benchmarks by Equity Category

Category Mandate Typical Tier 1 benchmark
Large cap Minimum 80% in large cap stocks Nifty 100 TRI or BSE 100 TRI
Large and mid cap Minimum 35% each in large and mid cap A large and mid cap composite index
Mid cap Minimum 65% in mid cap stocks Nifty Midcap 150 TRI
Small cap Minimum 65% in small cap stocks Nifty Smallcap 250 TRI
Multi cap Minimum 25% each in large, mid and small cap A multi-capitalisation index
Flexi cap Minimum 65% in equity, across capitalisations A broad market index such as Nifty 500 TRI
Focused Minimum 80% in equity, maximum 30 stocks A broad market index

Value or contra Minimum 80% in equity, following the stated strategy A broad index at Tier 1; a value or style index at Tier 2

Dividend yield Minimum 80% in equity, in dividend-yielding stocks A broad index at Tier 1; a dividend opportunities index at Tier 2

ELSS Minimum 80% in equity, three-year lock-in A broad market index
Sectoral or thematic Minimum 80% in the sector or theme The relevant sector or theme index

Note that the 80% minimum equity for dividend yield, value, contra, focused and ELSS schemes reflects SEBI's revised categorisation, which raised the threshold from 65% so that these categories stay true to their labels.

Why Sectoral and Thematic Schemes Need Their Own Index

A banking sector scheme compared against a broad market index tells you almost nothing about the manager. In a year when banking outperforms, every banking scheme beats the broad market; in a year when it lags, every one of them trails.

Benchmarking against a banking sector index separates the two questions:

Did the sector do well? — visible from the sector index against the broad market
Did the manager do well within the sector? — visible from the scheme against the sector index

Both matter, and only the second is about the manager. An investor in a sector fund has made the sector call themselves; what they are paying the manager for is stock selection inside it.

Tier 2 Benchmarks in Equity

Where an AMC adopts a Tier 2 benchmark, it reflects the specific style within the category — a quality index, a value index, a low-volatility index. Reading both benchmarks together is informative:

Pattern Interpretation
Beats Tier 1, lags Tier 2 The style worked; the manager lagged within the style
Lags Tier 1, beats Tier 2 The style was out of favour; the manager handled it well
Beats both Both style and selection contributed
Lags both Neither did

The second row matters most in practice, because it identifies a manager worth retaining through a period when the raw numbers look poor.

Total Return Basis

Every equity benchmark comparison uses the Total Return Index version. The suffix TRI in the table above is not decoration — comparing against the price version overstates the scheme's performance by roughly the market's dividend yield, as section 12.2 established.

Practical Guidance for Comparison

Identify the scheme's category , not its name.

Use the prescribed Tier 1 benchmark for that category.

Compare on a TRI basis over the same periods .

Compare against category peers as well as the benchmark, since category and benchmark can diverge.

Assess over a full market cycle , and prefer rolling returns where available.

Check whether the scheme's actual market-capitalisation split matches its category — a flexi cap fund running mostly large caps should be understood accordingly.

A Worked Comparison

An investor is shown two small cap schemes over the same three-year period.

Scheme P Scheme Q
Scheme return (CAGR) 21.0% 24.0%
Tier 1 benchmark return (TRI) 18.0% 26.0%
Category average return 20.0% 25.5%

Read on the headline number, Scheme Q wins by three percentage points a year. Read properly: Scheme P : 21.0% - 18.0% = +3.0 points versus benchmark

21.0% - 20.0% = +1.0 point versus category
Scheme Q : 24.0% - 26.0% = -2.0 points versus benchmark
24.0% - 25.5% = -1.5 points versus category

Scheme P added value against both its benchmark and its peers; Scheme Q trailed both. The gap in raw returns came from the periods being different market environments for the two funds' benchmarks, not from the managers. Comparing two schemes against each other without anchoring each to its own benchmark and category is the single most common analytical error a distributor makes.

Benchmark Against Category, Not Only Against Index

Both comparisons are needed, and they answer different questions.

Against the benchmark: did active management beat the passive alternative, net of the expense ratio?

Against the category average: did this manager do better than others working under the same constraints in the same conditions?

A scheme can lag its benchmark and still be the best available option in its category — index funds aside — and a scheme can beat its benchmark while sitting in the bottom quartile of peers. Neither comparison alone tells the investor what to do.

Practical Note on Thematic Schemes

For sectoral and thematic schemes, remember that the investor made the sector call. Judging the manager against a broad market index credits or blames them for a decision the investor made, which is why the sector index is the only fair reference.