PMS benchmarks: APMI's list and when one can change
Four Strategies, at most three benchmarks each, one tag per investment approach.
Since SEBI's circular of December 16, 2022, every PMS investment approach is tagged to one of four broad Strategies, and its performance is measured against one benchmark chosen from a short list that APMI (the Association of Portfolio Managers in India) prescribes for that Strategy. The aim is simple: two PMS approaches with the same Strategy can now be compared on the same footing.
Before this, each portfolio manager picked its own index, and some picked whichever made them look best. For a distributor, the rules also govern how you may quote performance to a client.
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The building blocks
- Investment approach (IA)
- The documented investment philosophy the PM follows for a set of clients. The investment approach page lists what its description must contain.
- Strategy
- A broad theme layered above the IA. There are four: Equity, Debt, Hybrid and Multi Asset. SEBI has clarified that Hybrid includes debt and equity, and Multi Asset includes at least three asset classes.
- Primary benchmark
- One index the PM selects for the IA from the maximum of three that APMI prescribes for its Strategy. APMI can revise the list in consultation with SEBI.
- Secondary benchmark
- Optional. A PM may add one per IA from a prescribed list of widely tracked, non-bespoke indices, consistent with the Strategy and primary benchmark. If chosen, it must be shown wherever past performance is tabulated or charted.
The tagging rules
- check_circleEach IA is tagged to one and only one Strategy; a PM may tag several IAs to the same Strategy.
- check_circleThe PM's Board is responsible for the right choice of Strategy and benchmark for each IA.
- check_circleTo change an IA's Strategy or benchmark tag, the PM must first offer existing clients in that IA an exit without exit load.
- check_circleAfter a change, the IA's track record from before the change cannot be used for performance reporting.
- check_circleChanges are recorded with reasons and verified in the annual audit. The same process applies to changing a secondary benchmark.
- check_circleThe rules apply to both discretionary and non-discretionary PMS.
Quoting performance: allowed and not allowed
These rules apply to any entity reporting, publishing or advertising an IA's performance, which includes a distributor's pitch deck and WhatsApp forwards (Master Circular, para 5.6.7).
| Must do | Must not do |
|---|---|
| Show the IA's TWRR with the trailing return of its selected benchmark | Quote model portfolio returns |
| In marketing material, show performance relative to the benchmark and relative to other PMs in the same Strategy | Quote the returns of one or a few cherry-picked clients |
| Carry the disclaimer that performance is not verified by SEBI | Use any categorisation of the IA other than its Strategy |
| Disclose changes in investment approach that may affect performance | Show figures that differ from what the PM reports to SEBI |
Free account, this exam preselected.
Where the comparison data lives
Portfolio managers submit monthly reports to APMI as well as SEBI within 7 working days of each month end. APMI publishes them on its website so investors can compare at portfolio manager, IA and industry level, and shares each IA's relative performance within its Strategy with the PM. APMI does not display secondary benchmark performance; only the primary benchmark appears there.
Example: a client asks whether an equity PMS approach returning 18% over three years is good. The right comparison is its TWRR against its selected primary benchmark over the same three years and against other Equity Strategy approaches on APMI's data, not against a friend's PMS or a different Strategy.
How XXI-A tests this
Number-recall items: four Strategies, maximum three benchmarks per Strategy, one Strategy per IA. Rule items: what retagging requires (an exit option without exit load, and the old track record is dropped), and who is responsible (the PM's Board). Traps: "each IA may be tagged to two Strategies", "the benchmark is chosen freely by the PM", "model portfolio returns may be shown with a disclaimer".
FAQs
How many benchmarks can APMI prescribe for each PMS Strategy?expand_more
A maximum of three. The portfolio manager selects one of them as the benchmark for each investment approach tagged to that Strategy.
Can a PMS change its benchmark?expand_more
Only after offering existing clients of that investment approach an option to exit without exit load. The approach's performance record from before the change can no longer be used, and the change is verified in the annual audit.
Where can I compare PMS performance?expand_more
APMI publishes portfolio managers' monthly reported data on its website, allowing comparison of investment approaches within the same Strategy against their benchmarks.