Benchmark simply means a point of reference or a threshold against which things are compared. Things are evaluated in light of such 'benchmark'. One gets to see or hear about such benchmarks in varied aspects of life. For instance, there would be 'benchmarks' for companies – the best performing one or the one with best corporate governance practice, in sports – the best sportsperson of any given discipline, in investments – the best performing mutual fund or the best investment avenue, the best professional and the list goes on and on. To understand in a lighter sense or rather a realistic one, during ones childhood, one is generally compared with the best performing student in the school or in the class – bet it academics, sports or other extra circular activities. These 'benchmarks' come up for discussions when the performance of any particular thing or person is to be assessed.

Closer to the subject under discussion, it would be worthwhile to consider the illustration of benchmarks in mutual fund industry or qua the stock market performance. Any investor wishing to invest in mutual funds or stock markets, would certainly evaluate its investment options in light of the respective benchmarks. For instance, a mutual fund investor would look for the best performing Large Cap scheme or a Multi cap scheme or a Mid Cap scheme etc. Similarly, a stock market investor would analyze the performance of the stock market or a particular stock over the years or with global stock markets or the performance in different business or economic cycles etc. The whole point is to invest your hard earned money in the most prudent manner after factoring certain information, though historic in nature, but which nevertheless certainly aids one to gauge the trend. It goes without saying that one would not imagine to suddenly metamorphose into a prophet by doing all the historical number crunching and statistical analysis. Eventually, the benchmarks, as in the context of investments, certainly aids in informed decision making while bearing in mind the calculated risk which any investor is eager to partake.

Alternative Investment Funds (AIFs) in India

AIFs are privately-pooled investment funds which collects funds from investors, whether Indian or foreign, for investing in accordance with a defined investment policy for the benefit of their investors. There are three different categories of AIFs. In India, the Securities and Exchange Board of India (SEBI) governs the AIFs in accordance with the SEBI (Alternative Investment Funds) Regulations, 2012 (SEBI AIF Regulations).

SEBI AIF Regulations are based on the premise that AIFs are a high-risk asset class, in which only sophisticated and well-informed investors participate. SEBI AIF Regulations therefore, emphasize on the investors being informed of all material information with regard to the AIFs and whenever any material changes are introduced therein, investor consent is sought prior to executing such changes.

SEBI Discussion Paper on Performance Benchmarking for AIFs and standardisation of Private Placement Memorandum (PPMs)

On December 04, 2019, SEBI, with a view to further introduce reforms in the AIF space, came out with a discussion paper on Performance Benchmarking for AIFs and standardisation of PPMs wherein SEBI invited comments from public and other stakeholders. Subsequently, after receipt of feedback on the said consultation paper from the public and deliberations in the Alternative Investment Policy Advisory Committee (AIPAC), SEBI formalised norms in this respect.

SEBI Circular on Performance Benchmarking, standardisation of PPM and Annual Audit by AIFs

SEBI came out with a circular1 in February 2020 thereby formalising the framework for performance benchmarking for AIFs. Through the said circular, SEBI has also introduced norms for standardisation of PPM and audit requirements for AIFs, however subject to certain exemptions. This way, SEBI took another step towards reforming the ever evolving regulatory ecosystem of AIFs.

Standardisation of PPM

PPM provides the necessary information that a prospective investor would need to take an informed decision to invest in a particular AIF. Though SEBI AIF Regulations provides a broad set of things that needs to be made a part of PPM, there was never a standard format of a PPM which would provide minimum disclosure requirement. Due to this, different AIFs followed their own way of preparing the PPM. There was a need felt to have a standard format of a PPM, from the point of view of the regulator, AIFs and eventually the investors.


1. SEBI Circular no. SEBI/HO/IMD/DF6/CIR/P/2020/24 dated February 05, 2020

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Originally published 9 May, 2020

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