SEBI modifies existing provisions on valuation of money market and debt securities

Sep 25, 2019 | by Avantis RegTech Legal Research Team


The Securities and Exchange Board of India (SEBI) on September 24, 2019, has issued a Circular on valuation of money market and debt securities. The provisions are compared and modifications made are listed in order to align these guidelines with best market practices and improve the robustness of valuation of these securities in exercise of powers conferred.

The followings are the modifications made by SEBI:-

 SEBI vide Circular no. SEBI/IMD/CIR No.16/193388/2010 dated February 02, 2010, SEBI Circular No. Cir/IMD/DF/6/2012 dated February 28, 2012 and SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2019 dated March 22, 2019, modifies the valuation of money market and debt securities with residual maturity upto 30 days and over 30 days as following:

1. Valuation of money market and debt securities with residual maturity of upto 30 days 

 Amortization based valuation is permitted with residual maturity of upto 30 days.

 If security level prices given by valuation agencies are not available for a new security then such security may be valued on amortization basis on the date of allotment or purchase.

 Further, with effect from April 01, 2020 onwards, amortization based valuation shall be dispensed with and irrespective of residual maturity.

2. Valuation of money market and debt securities with residual maturity of over 30 days:

 All money market and debt securities shall be valued at average of security level prices.

 If security level prices given by valuation agencies are not available for a new security then such security may be valued at purchase yield on the date of allotment or purchase.

 SEBI has deleted following provisions in existing circulars:

 Provisions related to Construction of Risk Free Benchmark, Mark up or Mark down yield and Application of Benchmark yield for valuation on the date of its release by any agency suggested by AMFI of  SEBI Circular No. MFD/CIR No.14/442/2002 dated February 20, 2002.

 Provisions of Methodology for matrix of spread for marking up the Benchmark yield of SEBI/IMD/CIR No.16/193388/2010 dated February 02, 2010.

 Association of Mutual Funds in India (AMFI) shall ensure that valuation agencies have documented waterfall approach for valuation of money market and debt securities. The following principles shall be adopted for implementing the waterfall approach: 

 All traded securities shall be valued on the basis of traded yields, 

 Volume Weighted Average Yield (VWAY) for trades in the last one hour of trading shall be used as the basis for valuation of Government Securities (including T-bills) and all exceptional events along-with valuation carried out on such dates shall be documented with adequate justification, 

 Reports on all trade on stock exchange should be considered for valuation on that day and, guidelines shall be issued by AMFI on polling by valuation agencies and on the responsibilities of Mutual Funds in the polling process. 

 SEBI extends the present timeline upto 11:00 p.m. for uploading the NAVs of all schemes (except Fund of Fund schemes) on the website of AMFI and respective AMCs.

 The guidelines for identification and provisioning for Non-Performing Assets (Debt securities) for Mutual Funds in terms of SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000 and SEBI Circular No. MFD/CIR/14/088/2001 dated March 28, 2001 stand deleted.

 The term “NPA” as per SEBI Circular No. MFD/CIR/6/73/2000 dated July 27, 2000; Circular No. SEBI/IMD/CIR No.8/132968/2008 dated July 24, 2008 and SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000 shall be replaced with “securities classified as below investment grade or default”. The below investment grade or default means the long term rating of the security issued by SEBI registered Credit Rating Agency (CRA). 

 SEBI modifies Paragraph 2 of SEBI Circular No. MFD/CIR/05/432/2002 dated June 20, 2002 related to “Treatment and disposal of illiquid securities or securities classified as default at the time of maturity or closure of schemes”. 

 SEBI vide Circular No. MFD/CIR/9/120/2000 dated November 24, 2000, Point 4(a) of the notes below the portfolio format shall be replaced as follows:

“If a security is in default beyond its maturity date, then disclosure to this effect shall be provided. Such disclosure shall include details of the security including ISIN, name of security, value of the security considered under net receivables (i.e. value recognized in NAV in absolute terms and as % to NAV) and total amount (including principal and interest) that is due to the scheme on that investment. Further, this disclosure shall continue till the value of the security recognized in the NAV is received or for a period of 3 years from the date of maturity of security, whichever is later.”

 Inter-scheme Transfer (IST)

[SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/102]


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