Valuation of securities - SEBI - MFD/CIR No.14/442/2002

Circulars CHIEF GENERAL MANAGER MUTUAL FUNDS DEPARTMENT MFD/CIR No.14/442/2002 February 20, 2002 All Mutual Funds Registered with SEBI Unit Trust of India Association of Mutual Funds in India Dear Sirs, As you are aware, SEBI issued guidelines for valuation of securities vide circulars dated September 18, 2000 and March 28, 2001. Association of Mutual Funds in India (AMFI) has made a representation for certain modifications in the guidelines. After examining the matter, the following modifications have been made in the guidelines : 1. Traded Securities The definition for traded securities given on page 1 of the circular dated September 18, 2000 shall be replaced by the following definition : When a security (other than debt 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, as the case may be, on the earliest previous day may be used provided such date is not more than thirty days prior to valuation date. When a debt security (other than Government Securities) is not traded on any stock exchange on any particular valuation day, the value at which it was traded on the principal stock exchange or any other stock exchange, as the case may be, on the earliest previous day may be used provided such date is not more than fifteen days prior to valuation date. When a debt security (other than Government Securities) is purchased by way of private placement, the value at which it was bought may be used for a period of fifteen days beginning from the date of purchase. 2. Thinly Traded Debt Security The definition of a thinly traded debt security given in pt. 2 (page 2) of circular dated March 28, 2001 shall be replaced by the following definition : A debt security (other than Government Securities) shall be considered as a thinly traded security if on the valuation date, there are no individual trades in that security in marketable lots (currently ₹ 5 crores) on the principal stock exchange or any other stock exchange. 3. Construction of Risk Free Benchmark 3. The paragraph on Construction of Risk Free Benchmark given on page 4 of the circular dated September 18, 2000 for valuation of securities shall be replaced by the following paragraph : GOI dated securities will be grouped into various duration buckets such as 0.5-1 years, 1-2 years, 2-3 years, 3-4 years, 4-5 years, 5-6 years and 6 years and the volume weighted yield would be computed for each bucket. These duration buckets may be changed to reflect the market value more closely by any agency suggested by AMFI giving benchmark yield/matrix of spreads over benchmark yield. The benchmark as calculated above will be set at least weekly, and in the event of any significant movement in prices of Government Securities on account of any event impacting interest rates on any day such as a change in the Reserve Bank of India (RBI) policies, the benchmark will be reset to reflect any change in the market conditions. 4. Mark up/Mark down yield The discount adjustments provided for securities rated by external rating agencies and internally rated securities on page 5 [Clauses C(I) and C(II)] of the circular dated September 18, 2000, shall be revised as follows : Category Discretionary discount over bench-mark yield in basis points Rated Instruments with duration upto 2 years Discretionary Discount of upto + 100 Rated Instruments with duration over 2 years Discretionary Discount of upto + 75 Unrated Instruments with duration upto 2 years Discretionary Discount of upto +50 over and above the mandatory Discount of + 50 Unrated Instruments with duration over 2 years Discretionary Discount upto + 50 over and above the mandatory Discount of +25. Other contents of these clauses remain unchanged. 5. Application of Benchmark yield for valuation on the date of its release by any agency suggested by AMFI. A new clause namely C(III) will appear after Clause C(II) [page 5] of the circular dated September 18, 2000. The benchmark yield/matrix of spreads over benchmark yield obtained from any agency suggested by AMFI as a provider of benchmark yield/matrix of spreads over benchmark yield to mutual funds, must be applied for valuation of securities on the day on which the benchmark yield/matrix of spreads over benchmark yield is released by the aforesaid agency. 6. Valuation of Government Securities For valuation of Government Securities, all the mutual funds are advised to use the prices for Government Securities released by an agency suggested by AMFI for the sake of uniformity in calculation of NAVs. These guidelines effective immediately are being issued in accordance with the provisions of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996. Yours faithfully, P.K. NAGPAL