JP Morgan Product Brief J.P. Morgan India Treasury Bill Index (JPM ITBI) The Index tracks returns on Indian treasury bills, which constitute the most liquid segment of Indian Money Markets · The Index is a constant duration price index, sub- indices available for 1 month, 3 month and 6 month benchmark maturities · Index history is available from the base date : April 1, 1996 Introduction J.P. Morgan India Treasury Bill Index  (JPM ITBI) is the first short-term index for the Indian domestic markets and is a part of the J.P. Morgan global series of indices. The Index is aimed at capturing returns on a portfolio invested in domestic short-term instruments. The increasing activity at the near end (< 1 year) of the market highlights the increased importance of these instruments as cash management and liquidity enhancing tools. This index is an attempt to provide the market participants (both domestic as well as international) a convenient and easily available instrument to capture and analyse the market movements in the less than one-year maturity segment of Indian markets. This brief details the methodology of the JPM ITBI, a total returns index that tracks the returns in the traded treasury bills market. Keeping with J.P. Morgan’s goal of index transpar- ency, this brief is designed to give investors insights into the construction of the Index. Transparent calculations are especially relevant for emerging markets like India, where market nuances and peculiarities necessitate the use of certain assumptions to capture the total returns of a particular instrument. Features of JPM ITBI The JPM ITBI has been designed to capture the most liquid segment of Indian money markets: the treasury bills. Treasury Bills constitute nearly 50% of the outstanding face value in the domestic money market segment and contribute to more than 90% of trading volumes. Also, registered Foreign Institutional Investor (FIIs) have recently been permitted to invest in Indian treasury bills, broadening the eligible investor base in the treasury bills segment of the money markets. Further, the returns on other short-term instruments, like Commercial Paper and Certificates of Deposit, are highly correlated to the returns on the treasury bills making it the most representative instrument in capturing the movements in this segment of the market. The Index tracks the yield and price movements of all the outstanding treasury bills: 14 day, 91 day, 364 day and other treasury bills (as and when issued). The JPM ITBI is a composite index which tracks the returns on a portfolio of instruments, where each instrument tracks the yields at a particular benchmark maturity. A series of sub- indices are also be available to indicate the returns at each of the benchmark maturities, the 1 month, 3 month and 6 month. Uses of the Index The JPM ITBI aids accurate and timely monitoring of the Indian money markets. The Index also serves as a reliable performance benchmark for banks, money market mutual funds or cash/liquid component of any other fund including a registered FII. In addition, the sub indices can be used to historically test investment strategies that involve cash or money market instruments and can also be used in asset allocation studies to determine optimal weights between various asset classes. Further, the Index is a useful tool to track volatility, charting correlation and developing hedging instruments. Going forward the Index could even be a useful input for the Monetary Conditions Index proposed by the Reserve Bank of India (RBI) in its Annual Report. Index characteristics To aid interpretation and usage,  we have tried to use a simple and uncomplicated methodology for constructing the Index. The construction methodology for JPM ITBI ensures the following index characteristics : 1) A constant index duration to aid meaningful benchmarking of returns across investment horizons. The Index duration is fixed at 150 days for the composite index, while the sub-indices have a maturity of 30 days, 90 days and 180 days. 2) Index performance that is independent of any specific entry date or investment cycle. The Index portfolio is marked to market and rolled over on a daily basis. 3) Primary dependence on data available from actual trades. The traded data provides the best estimate of market yields specially due to lack of screen based trading 4) Accurate and timely monitoring of the markets, which takes into consideration the distortions in ill-liquid phases of the market.