Total Return Index

An index can be published two ways. The price return variant (PRI) tracks only what the constituent shares did in price. The total return variant (TRI) assumes the dividends those companies paid were reinvested back into the index, and counts them too.

The difference matters because of how a scheme's own return is measured. A scheme collects the dividends on the shares it holds, and its performance is computed on the reinvestment basis. Comparing that against a price-only index is comparing a number that includes dividends with one that excludes them — a free head start of roughly the market's dividend yield every year.

SEBI closed the gap with effect from 1 February 2018. The workbook is blunt about the consequence: this made it look as though fewer schemes beat their benchmarks. Nothing about the reality changed. Only the honesty of the presentation did.

The gap between PRI and TRI is simply the dividend the index constituents paid. In Indian markets, the workbook notes, index-level dividend yields have mostly ranged between 1.5 and 2.5 per cent. So a scheme that used to clear its PRI benchmark by one percentage point a year was, on a like-for-like basis, roughly level with the market or slightly behind it.

The change came through SEBI circular SEBI/HO/IMD/DF3/CIR/P/2018/04 dated 4 January 2018. Where a TRI series does not exist for an older period, the fund must present a composite CAGR — the PRI benchmark up to the date from which TRI became available, and TRI from then on.

The rule now reaches everything. Under the two-tier benchmarking structure in force from 1 January 2022, both the Tier-1 and the Tier-2 benchmark must be Total Return Indices.

A large-cap scheme is compared over one year against the Nifty 50, whose price return was 11.0% and whose constituents yielded about 1.4% in dividends, giving a TRI return of roughly 12.4%. The scheme returned 12.0%.

The portfolio is identical in both rows. Only the comparator changed.

Carry it out to a real holding. Rs 25 lakh invested for five years:

Against PRI the scheme looks Rs 1.93 lakh ahead. Against TRI it is Rs 0.79 lakh behind. An investor deciding whether the active fee was worth paying needs the second comparison, not the first.

Chapter 11 (Mutual Fund Scheme Performance), section 11.2, is entirely about PRI versus TRI, and section 11.3 makes TRI benchmarking a mandate. This is a high-frequency recall question: which variant is mandatory, from what date, what the gap between the two represents, and what is used when TRI history is unavailable.

• TRI is a property of the benchmark, not of the scheme. It is the index with dividends reinvested — it says nothing about the fund.
• The PRI-to-TRI gap is the dividend yield, historically 1.5–2.5% at the Indian index level. If a question asks what the difference represents, that is the answer.
• Effective 1 February 2018, under a circular dated 4 January 2018. The two dates are separately examinable.
• The switch did not make funds worse. It made the comparison fair, so fewer schemes appear to outperform.
• Both tiers of the two-tier benchmark must be TRI. There is no PRI tier.
• Where TRI is not available for the whole period, use a composite CAGR of PRI then TRI — not PRI alone, and not a gap in the record.