Guidelines for valuation of securities and Identification and Provisioning for NPAs
Summary
This document issues guidelines for the valuation of securities and identification of non-performing assets for mutual funds registered with SEBI. The guidelines are effective from October 1, 2000, and are issued under Regulation 77 of the SEBI (Mutual Funds) Regulations, 1996. They categorize securities into traded, thinly traded, and non-traded types, specifying distinct valuation methodologies for each. This section details the methodology for building a matrix of spreads for marking up benchmark yields using corporate debenture trades. It outlines specific adjustments for illiquidity and risk for both externally and internally rated securities, including valuation rules for options. Additionally, it defines Non-Performing Assets (NPAs) and establishes strict provisioning and disclosure requirements for illiquid securities. This section details the phased provisioning rates for Non-Performing Assets (NPAs) based on months past due. It outlines procedures for reclassification of assets back to performing status and the recognition of income upon receipt of past dues. Additionally, it specifies disclosure requirements for NPAs in half-yearly reports and sets the effective implemen
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These guidelines are being issued in accordance with the provisions of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996. These guidelines are supplementary to the provisions specified in SEBI regulations.
These guidelines shall be effective from October 1, 2000.
When a security (other than Government Securities) is not traded on any stock exchange on a particular valuation day, the value at which it was traded on the selected stock exchange or any other stock exchange... on the earliest previous day may be used provided such date is not more than thirty days prior to valuation date.
When trading in an equity/equity related security... in a month is less than Rs. 5 lacs or the total volume is less than 50,000 shares, it shall be considered as a thinly traded security and valued accordingly.
Where a stock exchange identifies the 'thinly traded' securities by applying the above parameters for the preceding calendar month and publishes/provides the required information along with the daily quotations, the same can be used by the mutual funds.
If the share is not listed on the stock exchanges which provide such information, then it will be obligatory on the part of the mutual fund to make its own analysis in line with the above criteria to check whether such securities are thinly traded which would then be valued accordingly.
In case trading in an equity security is suspended upto 30 days, then the last traded price would be considered for valuation of that security. If an equity security is suspended for more than 30 days, then the Asset Management Company/Trustees will decide the valuation norms to be followed and such norms would be documented and recorded.
A debt security (other than Government Securities) that has a trading volume of less than Rs. 5 crores in the previous calendar month shall be considered as a thinly traded security based upon information provided by the relevant stock exchange on the volume of debt securities traded.
A thinly traded debt security as defined above would be valued as per the norms set for non-traded debt security.
When a security (other than Government Securities) is not traded on any stock exchange for a period of thirty days prior to the valuation date (instead of the existing provision of 60 days), the scrip must be treated as a ‘non traded’ security.
Non traded/ thinly traded securities shall be valued 'in good faith' by the asset management company on the basis of the valuation principles laid down below.
Net Worth per share = [share capital+ reserves (excluding revaluation reserves) – Misc. expenditure and Debit Balance in P&L A/c] Divided by No. of Paid up Shares.
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Source: SecMarx — Guidelines for valuation of securities and Identification and Provisioning for NPAs. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.