Total Return Index
Also written TRI · Total Return Index (TRI) · Total return variant of an index · Total Return Bond Index · Total Returns Index
The 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.
In plain language
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.
How it works
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 worked example
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%.
| Measured against | Index return | Scheme return | Verdict |
|---|---|---|---|
| PRI (pre-2018 practice) | 11.0% | 12.0% | scheme "beat the index" by 1.0 pp |
| TRI (mandatory since Feb 2018) | 12.4% | 12.0% | scheme lagged by 0.4 pp |
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:
| Rate | Value after 5 years | |
|---|---|---|
| The scheme | 12.0% | Rs 44.06 lakh |
| PRI benchmark | 11.0% | Rs 42.13 lakh |
| TRI benchmark | 12.4% | Rs 44.85 lakh |
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.
Why NISM asks about it
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.
Common exam traps
- 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.
Where this is taught
- Series V-D · Chapter 4: Legal and Regulatory Frameworkintroduced here
- Series V-A · Chapter 4: Legal and Regulatory Frameworkintroduced here
- Series V-B · Chapter 7: Performance of Mutual Fundsintroduced here
- Series XIX-E · Chapter 8: Indices and Benchmarkingintroduced here
- Series XVI · Chapter 2: Commodity Indicesintroduced here
- Series V-A · Chapter 11: Mutual Fund Scheme Performance
- Series V-D · Chapter 11: Mutual Fund Scheme Performance
Related terms
- IDCWThe renamed dividend option of a mutual fund scheme — a payout that is part income and part return of your own capital, which is why the NAV falls by exactly the amount distributed.
- 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.
- Compounded returnThe single yearly rate at which an investment's starting value would have to grow, each year's growth earned on the year before, to reach its ending value over a stated number of years.
- Price Return IndexThe variant of a market index that captures only the price movement — the capital gains — of its constituents, leaving out dividends and interest. Mutual funds were benchmarked to it until 1 February 2018.
- Tracking errorThe gap between the return of a passive fund and the return of the index it is trying to replicate — the measure of how faithfully an index fund or ETF does its one job.
- Two-tier benchmarkSEBI's structure giving certain mutual fund schemes two benchmarks: a Tier-1 index standing for the scheme's category, and a Tier-2 index standing for the fund manager's style or strategy within that category.
- Composite (hybrid) indexAn index that blends an equity index and a bond index in fixed proportions — reset periodically — to benchmark portfolios that hold both asset classes.
- I-BexICICI Securities' Sovereign Bond Index, built on government securities — an umbrella index for the whole market plus three maturity sub-indices, Si-Bex, Mi-Bex and Li-Bex.
- NIFTY50 USDThe dollar-linked variant of NIFTY 50: the NIFTY 50 close multiplied by the base-date exchange rate and divided by the day's exchange rate, so foreign investors see Indian equity returns in dollars.
- NIFTY Hybrid Index seriesA family of 6 NSE indices blending NIFTY 50 total return with an aggregate fixed income index in fixed proportions, reset monthly, to benchmark portfolios that hold both equity and debt.
- Fund factsheetThe monthly scheme summary an AMC publishes voluntarily — portfolio, performance, risk measures and investment details in one document. It is an AMFI best practice, not a statutory requirement.
- Composite CAGRThe 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.
- Dollar denominated indexAn index built to measure returns on Indian equity in US dollar terms — NIFTY50 USD restates the NIFTY 50 by the ratio of the base-date exchange rate to the current one.
- NIFTY T-Bills IndicesA family of NSE indices tracking Treasury bills across five maturity buckets — 30, 60 and 91 day, 182 day and 1 year — plus one all-maturity index, reconstituted at every T-bill auction.
- Passive fundA scheme that invests according to a specified index, holding its shares in the index's own weights, so it mirrors the index instead of trying to beat the market — and costs little to run.