Valuation of securities with multiple put options present ab-initio
Summary
This circular mandates that mutual funds must justify the non-exercise of put options if exercising them would benefit the scheme. Valuation agencies are prohibited from considering remaining put options in such cases when determining security valuation. The provisions apply to securities with multiple put options present ab-initio and become effective from October 1, 2021.
Text
A justification for not exercising the put option shall be provided by the Mutual Fund to the Valuation Agencies, Board of AMC and Trustees on or before the last date of the notice period.
The Valuation Agencies shall not take into account the remaining put options for the purpose of valuation of the security.
The put option shall be considered as ‘in favour of the scheme’ if the yield of the valuation price ignoring the put option under evaluation is more than the contractual yield/coupon rate by 30 basis points.
The circular shall be applicable with effect from October 01, 2021.
Source: SecMarx — Valuation of securities with multiple put options present ab-initio. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.