Total Returns Index (TRI) – an appropriate benchmark to compare fund performance

Financial institutions have come a long way since the aftermath of Global Financial Crisis in 2008. As asset management companies and fund houses battle to grab a larger share of corpus from increasingly knowledgeable investor cohort, more and more emphasis has been laid on building customer confidence and trust, financial transparency and ethics. In a recent survey by CFA, ‘From Trust to Loyalty: A Global Survey of What Investors Want’, majority (~38%) of the retail customers chose ‘Trust on asset managers/firm’ as their primary reason while picking an asset management firm.

More recently, one such step in achieving financial transparency is a decision by DSP Blackrock Mutual Fund & Edelweiss Mutual Fund to opt for Total Returns Index (TRI) as the benchmark to measure the performance of their funds. Prior to DSP Blackrock & Edelweiss Mutual Fund, Quantum mutual fund adopted the TRI benchmarks to compare the returns of their funds. Such a move by fund houses is in the right direction towards global convergence on usage of fair and transparent benchmarks – to gauge performances of assets under management.


What is Total Returns Index (TRI)?

There are two sources of returns on equity investments: capital gains and cash dividends. The cash dividends received are typically reinvested by mutual funds to generate further returns on net assets. For instance, The PRI (Price Returns Index) version of NIFTY 50 for the year 2016 delivered a return of 3.01% and the 50 underlying stocks paid an aggregate dividend of 1.47%, thus the TRI version of the index delivered 4.48% return during the year. Historically, most of the domestic funds have used PRI, to compare their funds’ performances, which considers only capital gains (price appreciation) thus ignoring dividend returns. Total Returns Index (TRI) captures both – price appreciation and cash dividends to reflect all sources of returns in equity portfolio. The Net Asset Value (NAV) calculated by mutual funds also reflects both these sources of returns. Using TRI for fund performance comparison is thus a more appropriate, fair and prudent benchmarking practice.


Global emphasis on usage of total return index benchmarks for performance comparison

Globally, the emphasis on transparency has been on a rise as indicated by the guidelines issued by various capital market regulators. In the United States, Securities and Exchange Commission (SEC) regulations published in 1998 mandates that all funds report performances using appropriate benchmarks which consider reinvestment of dividends for index computation (read TRI). Most of the asset managers in the United States claiming a large part of the industry AUM use Total Returns (TR) indices as benchmarks to measure the performances of their funds. Below is the summary of 5 such asset managers and few of their top funds and corresponding benchmarks.


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By Purvee Khandelwal

Over the past few years, providing financial and investment advice has seen a sea of changes. The new Fin-Tech revolution has taken the financial industry by storm. In general, every industry is being affected by technological advancements, especially in automation. Human consultants are being replaced by robo-advisors. They are investment advisory platforms that use automation and algorithms to allocate portfolios and recommend investments to individual clients.

As of 2015-16, Robo-advisors rule over $55 billion Assets under Management (AUM) of the $25 trillion retail investable assets in the United States. With a projected growth of 68%, it is estimated to reach $2.2 trillion by the end of year 2020.

Major players in the US market are Wealthfront, Betterment, LearnVest, Vanguard, Schwab, etc.However, the surge of such players has been seen in India only recently. ArthYatra, OXO Wealth, Wixfi, Unovest and ICICI Securities’ “Track & Tct” are a few examples.

How does it work?

It captures basic information like investment goals (retirement and children’s education) and your comfort level with risk. Users may be classified into various buckets based on parameters such as age, time horizon, quantum of investment, nature of household (single or dual income, dependants) and risk appetite. The platform’s algorithm tells you the amount you may invest indiversified equity (blend of large, mid and small-cap mutual funds), gold or debt. But you are not bound by the recommendations made by the platform. You still have an option to pick a portfolio that is aggressive or passive based on your comfort level. Also, you can review their recommendations periodically.

What’s in it for the consumers?

From a consumer’s perspective, there are a number of reasons fuelling the growth of digital advice.One of them is that it streamlines the process with increased transparency into investment options, low fees and enhanced experience via web and mobile applications. Also it appeals to millennials or less-wealthy investors because exchange-traded funds (ETFs) are used to build diversified portfolios.

What’s in it for the organization?

As robo-advice will have significant affect in the wealth management business, organizations will have to transform their business and operating models- the people, processes and technologies that support it.From an organisation’s perspective, this can provide numerous benefits like faster AUM growth, incredible opportunities in upcoming market segments comprising millennials, a better empowerment of human financial advisors to think innovatively and more opportunity to cross sell high-margin advice.


Digital and advance analytics, automated advice will likely become a standard expectation for the mass-affluent and mass-market segments. It will bring competitive advantage to firms who adopt them in this early wave, which means incorporating financial planning into broader retirement, health and wellbeing plans. Still, there are parts of the client-advisor relationship —such as reassuring clients through difficult markets, persuading clients to take action and synthesizing different solutions—that should remain the province of the financial advisor for the foreseeable future. However, it is clear that Robo-advice is here to stay and poised to evolve into something much more disruptive.