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TMI BlogValuation of money market and debt securitiesX X X X Extracts X X X X X X X X Extracts X X X X ..... d debt securities needs to be updated. Accordingly, traded and non-traded money market and debt securities shall be defined as follows: a. A money market or debt security shall be considered as traded when, on the date of valuation, there are trades (in marketable lots) in that security on any recognized Stock Exchange or there are trades reported (in marketable lots) on the trade reporting platform of recognized stock exchanges or The Clearing Corporation of India Ltd. (CCIL). In this regard, the marketable lots shall be defined by AMFI, in consultation with SEBI. b. A money market or debt security shall be considered as non-traded when, on the date of valuation, there are no trades (in marketable lots) in such security on any recognized Stock Exchange or no trades (in marketable lots) have been reported on any of the aforementioned trade reporting platforms. 1.1.1.2 As the valuation methodology for thinly traded debt securities is same as non-traded debt securities, a separate definition of thinly traded debt securities is not required and stands deleted as provided in aforementioned circular. 1.1.2 Valuation of money market / debt securities, Government Securities, inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se security level prices given by valuation agencies are not available for a new security (which is currently not held by any Mutual Fund), then such security may be valued at purchase yield on the date of allotment / purchase. 1.1.2.3 Valuation of Government Securities: Reference: Paragraph 6 of SEBI Circular No. MFD/CIR No.14/442/2002 dated February 20, 2002 a. It is clarified that irrespective of the residual maturity, Government Securities (including T-bills) shall be valued on the basis of security level prices obtained from valuation agencies. 1.1.2.4 Valuation of other money market / debt securities, short-term deposits with banks (pending deployment) and OTC derivatives: a. The valuation of bills purchased under rediscounting scheme shall be as per the guidelines mentioned for valuation of money market instruments, at paragraphs 1.1.2.1 and 1.1.2.2, as the case may be. b. Investments in short-term deposits with banks (pending deployment) and repurchase (repo) transactions (including tri-party repo i.e. TREPS) with tenor of upto 30 days, shall be valued on cost plus accrual basis. c. In order to have uniformity in valuation methodology, prices for all OTC deriv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r No. SEBI/IMD/CIR No.16/193388/2010 dated February 02, 2010 2.0 Waterfall approach for valuation of money market and debt securities: It is decided that for arriving at security level pricing, a waterfall approach shall be followed for the valuation of money market and debt securities. 2.1 AMFI shall ensure that valuation agencies have a documented waterfall approach for valuation of money market and debt securities. The said waterfall approach shall be documented in consultation with SEBI. 2.2 The following broad principles should be adopted as part of the aforesaid waterfall approach, for arriving at the security level prices: 2.2.1 All traded securities shall be valued on the basis of traded yields, subject to identification of outlier trades by the valuation agencies. 2.2.2 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). Valuation of all other money market and debt securities (including Government securities not traded in last one hour) shall be done on the basis of VWAY of all trades during the day. 2.2.3 An indicative list of exceptional events ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art of the valuation policy of individual AMCs which is uploaded on their respective websites. AMFI shall ensure that the said waterfall approach is also available on the website of the valuation agencies. 3.0 Extension of time for disclosure of NAV: Reference: SEBI Circular No. SEBI/IMD/CIR No. 5/63714/06 dated March 29, 2006 3.1 In order to enable consideration of all trades during a day for valuation, it has been decided to extend 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. 4.0 Deviation from valuation guidelines: 4.1 As per the Principles of Fair Valuation specified in Eighth Schedule of SEBI (Mutual Funds) Regulations, 1996, AMCs are responsible for true and fairness of valuation and correct NAV. Considering the same, in case an AMC decides to deviate from the valuation price given by the valuation agencies, the detailed rationale for each instance of deviation shall be recorded by the AMC. 4.2 The rationale for deviation along-with details such as information about the security (ISIN, issuer name, rating etc.), price at which the security was valued vis-a-vis t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of securities classified as default, no further interest accrual shall be made. 5.1.2.2 The following shall be the treatment of how any future recovery should be accounted for in terms of principal or interest: a. Any recovery shall first be adjusted against the outstanding interest recognized in the NAV and any balance shall be adjusted against the value of principal recognized in the NAV. b. Any recovery in excess of the carried value (i.e. the value recognized in NAV) should then be applied first towards amount of interest written off and then towards amount of principal written off. 6.0 Review of provisions referring to Non-Performing Assets: 6.1 Considering that as per the Principles of Fair Valuation, valuation has to be reflective of the realizable price, the concept of Non-Performing Assets (NPAs) may not be relevant for the Mutual Fund industry. It has thus been decided to appropriately modify all regulatory provisions referencing NPAs. Accordingly, the following modifications are made to extant SEBI circulars: 6.1.1 The guidelines for identification and provisioning for Non-Performing Assets (Debt securities) for Mutual Funds in terms of SEBI Circular No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 7.0 Use of own trade for valuation: 7.1 Various instances have come to notice wherein Mutual Funds have used their own trades of relatively small quantity in order to value the entire holding of such security. 7.2 In order to address possible mis-use as mentioned above, Mutual Funds shall not use their own trades for valuation of debt and money market securities and for Inter-scheme transfers. 8.0 Inter-scheme transfers (IST): 8.1 With respect to Inter-scheme transfers, it has been decided that: 8.1.1 AMCs shall seek prices for IST of any money market or debt security (irrespective of maturity), from the valuation agencies. 8.1.2 AMFI, in consultation with valuation agencies shall decide a turn-around-time (TAT), within which IST prices shall be provided by the agencies. 8.1.3 If prices from the valuation agencies are rec ..... 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