Mutual Funds: SEBI Issues Norms For Valuation Of Below Investment Grade Debt Securities
The norms are aimed at ensuring uniformity and consistency in valuation across the mutual fund industry.
The Securities and Exchange Board of India on Friday came out with norms for valuation of money market and debt securities that are rated below investment grade, a move aimed at ensuring uniformity and consistency in valuation across the mutual fund industry.
In a circular, the regulator said all money market and debt securities rated below investment grade shall be valued at the price provided by valuation agencies. Till the agencies compute the valuations, such securities would be valued on the basis of indicative haircuts provided by the agencies.
“AMCs (asset management companies) may deviate from the indicative haircuts and/ or the valuation price for money market and debt securities rated below investment grade provided by the valuation agencies” subject to certain conditions, the circular said.
The detailed rationale for deviation from the price post haircuts or the price provided by the valuation agencies should be recorded by the asset manager.
Further, asset management firms should immediately disclose instances of deviations under a separate head on their websites.
“In case of trades during the interim period between date of credit event and receipt of valuation price from valuation agencies, AMCs shall consider such traded price for valuation if it is lower than the price post standard haircut. The said traded price shall be considered for valuation till the valuation price is determined by the valuation agencies,” the circular said.
Besides, the residual maturity for amortisation-based valuation would be reduced from existing 60 days to 30 days.
The amortised price will be compared with the reference price which shall be the average of the security level price of such security as provided by the agency appointed by the Association of Mutual Funds in India.