Composite CAGR
The blended CAGR SEBI requires for benchmark comparison when Total Return Index data is not available for the whole period — Price Return Index CAGR up to the date TRI began, spliced with TRI CAGR after it.
In plain language
A scheme's performance must be measured against a benchmark, and that benchmark should be a Total Return Index (TRI) — one that includes the dividends the index's own constituents paid out, not just their price change.
The trouble is that TRI data does not go back forever. For many indices, only a Price Return Index (PRI), which ignores dividends, exists before a certain date.
SEBI's fix is to splice the two: use the PRI's CAGR for the stretch of time before TRI data existed, and the TRI's CAGR for the period after. The blended figure is the composite CAGR, and it is what a scheme's performance should be measured against whenever a pure TRI series does not cover the whole period being compared.
How it works
SEBI's rule (Chapter 11, referencing SEBI Circular SEBI/HO/IMD/DF3/CIR/P/2018/4, dated 4 January 2018): a scheme's benchmark must be the TRI variant of the chosen index. Where TRI is not available for the full comparison period, mutual funds must use a composite CAGR — the PRI benchmark's CAGR until the date from which TRI is available, followed by the TRI's CAGR from that date onward.
The reason TRI matters at all: PRI and TRI track the same index price moves, but only TRI adds back the dividends the underlying constituents paid. The workbook notes that, historically in Indian markets, index-level dividend yields have most often ranged from 1.5% to 2.5% — the annual gap composite CAGR is built to avoid overstating or understating, depending on which side of the TRI-start date a comparison period falls on.
A worked example
Illustrative — the workbook gives the method and the 1.5–2.5% historical dividend-yield range, not a full worked CAGR.
Suppose TRI data for an index only exists from 1 January 2015 onward, but a scheme wants to show its 12-year performance from 1 January 2013, on a Rs 10,00,000 notional investment in the benchmark.
Jan 2013 to Jan 2015 (2 years) → use PRI CAGR for this stretch, say 12.0%
Jan 2015 to Jan 2025 (10 years) → use TRI CAGR for this stretch, say 13.5%
Composite value after 12 years ≈ Rs 10,00,000 × 1.12² × 1.135¹⁰ ≈ Rs 45,70,000
The composite CAGR reported to investors links these two stretches rather than using PRI for the whole 12 years, which would understate the benchmark by roughly 1.5–2.5 percentage points a year of missed dividend income for the pre-2015 leg — exactly the gap the workbook's dividend-yield range describes.
Why NISM asks about it
Chapter 11 (Mutual Fund Scheme Performance), section 11.3, covers benchmark selection and the composite CAGR requirement directly, citing the January 2018 SEBI circular. Expect a question on when composite CAGR must be used (TRI unavailable for the full period) and on the PRI-then-TRI sequencing, not the reverse.
Common exam traps
- PRI is used for the earlier stretch, TRI for the later stretch — not the other way round. TRI data starts later than PRI data for most Indian indices, not the reverse.
- Composite CAGR is a benchmark-construction rule, not a scheme-return rule. It fixes what the scheme is measured against, not how the scheme's own return is computed.
- 1.5% to 2.5% is a historical range for index dividend yields, not a fixed conversion factor — the actual PRI/TRI gap in any specific period can sit outside that range.
Where this is taught
Free preparation for NISM Series V-DRelated terms
- CAGRThe single smoothed annual rate at which a starting value would have to grow, compounding each year, to reach the ending value over a given period.
- Net Asset ValueThe net assets of a mutual fund scheme divided by the number of units outstanding — what one unit of the scheme is worth on a given day, after every liability except the unitholders' own.
- BenchmarkThe independently published index a scheme's performance is measured against, chosen to match its investment objective, asset allocation and strategy, and disclosed in the Scheme Information Document.
- Total Return IndexThe variant of a market index that adds the dividends and interest paid by its constituents to their price movement — the only variant a mutual fund scheme may be benchmarked against since 1 February 2018.
- Ranking and rating of schemesResearch agencies' assessment of past scheme performance within a category — a numbered rank, or a clustered star rating — that reflects history only, with no ability to predict future performance.
- Standard benchmarksA fixed, SEBI-specified benchmark for each scheme category — Sensex or Nifty for equity, the 10-year GOI security for most debt schemes — disclosed alongside a scheme's own chosen benchmark for comparison.
- Synthetic indexA blended benchmark built by combining two or more existing indices in fixed proportions — used where no single published index matches a hybrid or multi-country scheme's actual asset mix.