- How a Change Happens
- Why That Matters
- The Two-Tier Wrinkle
- What Survives a Switch, and What Doesn't
- What to Actually Do
- A Closing Caveat
Every mutual fund scheme is measured against an index. That index is not fixed. A fund can change it, and when it does, the scheme's entire performance history gets re-presented against the new one.
This is disclosed. It is also easy to miss.
How a Change Happens
The AMC files an addendum to the Scheme Information Document stating the new benchmark and the effective date. Trustees approve it. SEBI requires the disclosure; it does not require the fund to explain the change in any depth, and there is no obligation to keep publishing the old comparison alongside the new one.
From the effective date onward, factsheets, fund pages and marketing material show performance against the new index. The returns themselves don't move; those are the scheme's actual returns. What moves is the yardstick.
Why That Matters
A fund's outperformance is a difference between two numbers: scheme return and benchmark return. Change the second number and the difference changes, including for periods that already happened.
Consider a mid-cap scheme benchmarked to an index that ran hot for three years. The scheme trailed. Switch to a broader or differently constructed index that ran cooler, and the same three years now read as a modest lead. Nothing about the fund's management changed. The comparison did.
Two industry-wide resets illustrate the scale. In a circular dated 4 January 2018, SEBI required funds to benchmark against Total Return Index variants rather than price return indices, effective 1 February 2018. TRI includes dividends, so benchmark returns rose across the board and reported alpha fell across the board, a one-time, industry-wide restatement of relative performance that had nothing to do with fund manager skill. SEBI's 27 October 2021 circular introduced a two-tier structure, effective 1 January 2022: a first-tier index reflecting the scheme's category, and an optional second tier reflecting the fund manager's investment style or strategy within that category. Funds may report against both.
The Two-Tier Wrinkle
The second tier exists for a defensible reason. A flexi cap fund tilted toward quality has a genuinely different opportunity set than the category index, and a strategy-specific benchmark measures the manager more fairly.
It also gives a fund two numbers to point at. If the strategy index is the flattering one, that is the one likely to feature in the presentation. Neither is wrong. But an investor comparing two funds may be comparing them against different reference points without realising it.
What Survives a Switch, and What Doesn't
Scheme returns survive. They are what they are.
Alpha, information ratio, tracking error, and any claim phrased as "beat the benchmark X years running" do not survive intact; every one of them is defined relative to the benchmark and gets recomputed against the new one. Ratings and rankings that use category peer groups rather than the scheme's own benchmark are less affected, but not immune, since category definitions shift too.
The practical asymmetry: a fund that changed benchmarks three years ago can accurately describe a decade of outperformance without the material ever indicating that the first seven years were measured against something else.
What to Actually Do
Before you rely on a long-run outperformance claim, check whether the benchmark held steady across the period being claimed.
The SID and its addenda are the primary source on the AMC's website. The current benchmark appears on every factsheet. Comparing the benchmark named in an old factsheet with the current one takes a few minutes and tells you whether the comparison is continuous.
If it changed, the fund's own numbers are still real, but the "consistently beat its benchmark" line covers two different benchmarks, and that phrase is doing more work than it looks like.
A Closing Caveat
Most benchmark changes are routine: regulatory mandates, index discontinuations, or genuine strategy evolution that makes the old index inappropriate. Whether funds also change benchmarks opportunistically after weak stretches is an open question. It is plausible and untested, and no public dataset in India currently allows it to be settled. It would take a hand-built sample of scheme addenda to answer properly, worth doing as a separate research study, not worth asserting here.