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Business News/ Money / Personal-finance/  What is Total Returns Index
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What is Total Returns Index

In a Total Returns Index, or TRI, the dividends of the underlying companies of the index are added back into their share prices, which is why it is called the 'total return'

In Total Returns Index, the return from a company’s share doesn’t just come from the share price movement, but also from dividends. Photo: BloombergPremium
In Total Returns Index, the return from a company’s share doesn’t just come from the share price movement, but also from dividends. Photo: Bloomberg

All equity indices, such as S&P BSE Sensex, S&P BSE Mid cap, Nifty 50, Nifty 500 and others, come in two variants. What you see usually see in the papers is the Price Returns Index (PRI). The other variant is the Total Returns Index (TRI).

In a TRI, the dividends of the underlying companies of the index are added back into their share prices, which is why it is called the “total return" since the return from a company’s share doesn’t just come from the share price movement, but also from dividends.

All equity mutual fund schemes are now supposed to benchmark their performances against a TRI. The reason being: an equity fund’s growth option considers the dividends it earns—but doesn’t distribute—from the underling companies. So, it is only fair that the scheme’s performance be measured against a TRI.

In many developed markets abroad, mutual funds are benchmarked against various TRIs. The Indian mutual fund industry has just recently moved towards it.

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Published: 23 Apr 2018, 06:10 AM IST
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