SEBI made changes in valuation norms for debt and money market instruments
PFW bureau / Feb 3, 2010
SEBI has made some changes in the valuation method of debt and money market instruments with a view to ensure that the valuation of money market and debt securities in the portfolio of mutual fund schemes reflect the current market scenario.
The regulator said in a circular that the current provisions regarding the valuation of these securities will be modified in the following ways:
I. Valuation of money market and debt securities with residual maturity
of upto 91 days:
All money market and debt securities, including floating rate securities, with residual maturity of upto 91 days shall be valued at the weighted
average price at which they are traded on the particular valuation day. When such securities are not traded on a particular valuation day they
shall be valued on amortization basis. It is further clarified that in case of floating rate securities with floor and caps on coupon rate and residual
maturity of upto 91 days then those shall be valued on amortization basis taking the coupon rate as floor.
II. Valuation of money market and debt securities with residual maturity
of over 91 days:
All money market and debt securities, including floating rate securities, with residual maturity of over 91 days shall be valued at weighted average
price at which they are traded on the particular valuation day. When such securities are not traded on a particular valuation day they shall be valued
at benchmark yield/ matrix of spread over risk free benchmark yield obtained from agency(ies) entrusted for the said purpose by AMFI.
III. Valuation of securities not covered under the current valuation policy:
In case of securities purchased by mutual funds do not fall within the current framework of the valuation of securities then such mutual fund
shall report immediately to AMFI regarding the same. Further, at the time of investment AMCs shall ensure that the total exposure in such securities
does not exceed 5% of the total AUM of the scheme. AMFI has been advised that the valuation agencies should ensure that the
valuation of such securities gets covered in the valuation framework within six weeks from the date of receipt of such intimation from mutual fund.
In the interim period, till AMFI makes provisions to cover such securities in the valuation of securities framework, the mutual funds shall value such
securities using their proprietary model which has been approved by their independent trustees and the statutory auditors.
IV. Dissemination of information:
All mutual funds shall provide transaction details, including inter scheme transfers, of money market and debt securities on daily basis to the
agency entrusted for providing the benchmark yield/ matrix of spread over risk free benchmark yield. Submission of data would help in daily matrix
generation and would improve uniformity and accuracy of valuation in the mutual funds industry.
V. Methodology for matrix of spread for marking up the Benchmark
yield
In the methodology for pricing the non-traded debt securities details shall be provided.
VI. Consistency
SEBI directed all the AMC’s to ensure that similar securities held under its various schemes shall be valued consistently. The aforesaid valuation would be applicable with effect from July 1, 2010. The circular is issued in exercise of powers conferred under section 11(1) of the Securities and Exchange Board of India Act, 1992, read with the provisions of regulation 77 of SEBI (Mutual Funds) Regulations, 1996 to protect the interests of Investors in securities and to promote the development of and to regulate the securities market.
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