Nifty 50 TRI or total return index includes both the movement of prices or the capital gain/loss and the dividend received from the security. It gives a more realistic picture of the return from the stock as it includes all the constituents associated with it like price change, interest, and dividend. Nifty 50 TRI is more of the latest approach as to how investors benchmark their mutual funds because it helps them to assess the fund in a better manner.
How is Nifty 50 TRI different from Nifty 50?
The Nifty 50 Total Returns Index is abbreviated as NIFTY 50 TRI. The Nifty 50 and Nifty 50 TRI index differ in that the Nifty measures price changes in the underlying 50 equities, whilst the Nifty 50 TRI takes into account price changes as well as dividends paid from constituent stocks.
An index's dividend is usually around 1.5 percent per year. Because the present indices do not include dividends, they understate the indices' yearly returns by around 1.5 percent. The TRI now includes the indices' dividends. The TRI is essentially an index that tracks both a scheme's capital gains and any cash distributions, such as dividends, which are assumed to be reinvested back into the index.
The total return index is a valuable benchmark for determining the real return provided by stock or mutual fund members. It is a component of an index's performance, as well as dividends paid and dividends reinvested back into the index. It's a useful metric because it specifies what the investor receives in return for his or her investment.
All mutual funds are now benchmarked against the total return index, which was formerly benchmarked against the price return index in all major developed economies. Even in the case of equity funds, when it comes to the fund's growth option, the dividend it generated but did not distribute from its underlying companies must be considered. As a result, when calculating the real return from an equity fund, TRI plays a larger role.