I-Bex

A debt scheme needs a benchmark just as an equity scheme does, and the benchmark has to look like the portfolio. For a scheme holding government securities, that means an index built from government securities.

I-Bex is one of them: ICICI Securities' Sovereign Bond Index. It has two layers. An umbrella index covers the entire government securities market. Beneath it, three sub-indices each cover a contiguous maturity bucket, so a portfolio of short-dated gilts need not be measured against a basket dominated by 20-year paper.

The workbook also uses I-Bex as the debt half of a synthetic benchmark for hybrid schemes, which is where it most often turns up in a question.

The sub-indices (Chapter 11, section 11.5):

Who builds debt benchmarks. Under SEBI guidelines, benchmarks for debt and balanced schemes should be developed by research and rating agencies recommended by AMFI. The workbook names CRISIL, ICICI Securities and NSE. NSE's G-sec indices include the Nifty composite G-sec index and Nifty 10-year benchmark G-sec index; BSE has the S&P BSE India Sovereign Bond Index and Government Bill Index; CRISIL has its own family of debt indices.

Matching the index to the scheme. Gilt funds invest only in government securities, so indices based on government securities are appropriate for them. Debt funds holding both government and non-government paper need a benchmark calculated on a diverse mix of debt securities. Liquid schemes, investing up to 91 days, need a short-term money market benchmark instead.

Hybrid schemes. A hybrid fund's benchmark is a blend of an equity and a debt index. The workbook's example: a scheme with about 65 per cent equity can use a synthetic index of 65% S&P BSE Sensex + 35% I-Bex.

Synthetic hybrid benchmark return
  = (Equity weight × Equity index return)
  + (Debt weight   × Debt index return)

Workbook weights: 0.65 × Sensex + 0.35 × I-Bex

Illustrative. The index and scheme returns are hypothetical; the 65/35 construction is the workbook's.

A hybrid scheme with about 65 per cent in equity is benchmarked to 65% Sensex + 35% I-Bex. Over a year:

The scheme returned 11.00 per cent, beating its benchmark by 0.75 percentage points. On Suman's holding of Rs 4,00,000, that is:

4,00,000 × 0.75% = Rs 3,000 above the benchmark

Measured against the Sensex alone, the same scheme would appear to have lagged by 1 percentage point — an unfair comparison for a portfolio a third of which is in bonds.

A gilt fund holding mostly 1-to-3-year government securities is a different case: a government securities index fits, and I-Bex's Si-Bex bucket is the one whose maturities resemble that portfolio.

Chapter 11 (Mutual Fund Scheme Performance), section 11.5 (Benchmarks for Debt Schemes), describes I-Bex, its umbrella index and the Si-Bex, Mi-Bex and Li-Bex buckets; section 11.6 uses 65% Sensex plus 35% I-Bex as the hybrid benchmark example. Expect recall questions on which firm publishes I-Bex, what its sub-indices cover, and how a hybrid benchmark is blended.

• I-Bex is ICICI Securities', not CRISIL's, NSE's or BSE's — each of those has its own debt indices.
• Si-Bex 1–3 years, Mi-Bex 3–7 years, Li-Bex more than 7 years. Short, medium, long.
• It is a government securities index. It suits gilt portfolios; a debt fund holding corporate paper needs a benchmark built on a diverse mix of debt securities.
• Liquid funds use money market benchmarks, such as NSE's liquid index or the CRISIL Liquid Fund Index — not I-Bex.
• In the hybrid example, I-Bex is the 35 per cent, Sensex the 65 per cent.
• Chapter 11 separately requires scheme benchmarks to be Total Return Indices; the 65/35 blend illustrates how a hybrid benchmark is built.