Composite (hybrid) index

A portfolio that holds 65% equity and 35% debt cannot fairly be judged against the NIFTY 50 alone, or against a bond index alone. It needs a benchmark with the same mix.

The workbook calls such benchmarks stock-bond (composite) indices: they blend equities as well as bonds and are useful in evaluating the performance of portfolios with exposure to both asset classes. It also calls them hybrid indices.

The example it gives is the NIFTY Hybrid Index series, which blends the NIFTY 50 TR (total return) index with fixed income indices in various proportions.

How the NIFTY Hybrid Index series works (Chapter 12, section 12.7):

• 6 indices blend NIFTY 50 TR with aggregate fixed income indices in different proportions.
• They are derived from the total return versions of NIFTY 50 and the fixed income indices.
• Weights drift between reset dates as prices move, and are reset to their pre-defined levels monthly.

Table 12.10 (as printed):

Why total return versions? A benchmark for a portfolio that earns dividends and coupons must include them. Chapter 12 says an investor in index stocks should benchmark against the total returns index.

Link to PMS benchmarking (Chapter 9, section 9.3.11). Every PMS investment approach must be tagged to one strategy — equity, debt, hybrid or multi-asset — and APMI prescribes up to three benchmarks per strategy. A composite index is the natural kind of benchmark for the hybrid strategy.

Illustrative figures. A hybrid PMS strategy targets 65% equity, 35% debt. Over one year:

The strategy beat its composite benchmark by 0.95 percentage points. Against NIFTY 50 TR alone it would appear to lag by 1.5 points; against the debt index alone it would appear to beat by 5.5 points. Neither comparison is fair.

Why the monthly reset matters. Start a month with ₹100 split ₹65 / ₹35. If equity rises 4% and debt 0.5% during the month, the values become ₹67.60 and ₹35.175 — total ₹102.775 — so equity is now 67.60 ÷ 102.775 ≈ 65.8%. At the reset, the index moves back to exactly 65:35. (This single-month calculation is a simplification of the index's blended return.)

Chapter 12 (Introduction to Indices), section 12.7, covers stock-bond composite indices and the NIFTY Hybrid Index series with Table 12.10. Chapter 9 (section 9.3.11) sets out PMS performance benchmarking by strategy, including hybrid. Chapter 20 (section 20.5) covers benchmarking in performance evaluation. Expect questions on what a composite index blends, why it is used and how often weights are reset.

• Table 12.10 has a printing error. The NIFTY 50 Hybrid Short Duration Debt 25:75 row shows the debt allocation as 25%. The index name — and the need for weights to total 100% — say it is 75%.
• Weights are reset monthly, not daily, quarterly or annually. Between resets they drift.
• Built from total return versions of the equity and debt indices, not price return versions.
• The series has 6 indices in the workbook.
• Composite (hybrid) index ≠ composite commodity index. Other NISM papers use "composite index" for a commodity index spanning several segments — a different meaning.