Valuation of Debt and Money Market Instruments
Summary
This circular mandates modified valuation methods for debt and money market instruments in mutual fund portfolios to reflect current market scenarios. It establishes distinct valuation rules based on residual maturity, specifically distinguishing between securities with up to 91 days and those exceeding this threshold. The provisions require consistent application, daily data dissemination, and interim proprietary valuation for uncovered securities, effective from July 1, 2010.
Text
All money market and debt 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... they shall be valued on amortization basis.
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.
All money market and debt 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... 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.
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.
In the interim period... the mutual funds shall value such securities using their proprietary model which has been approved by their independent trustees and the statutory auditors.
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.
Additional duration bucket(s) viz., 0.25- 0.5 yrs shall be provided.
All AMC’s shall 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.
This 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...
Source: SecMarx — Valuation of Debt and Money Market Instruments. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.