SEBI changes debt fund valuation norms for Mutual Funds

SEBI vide its SEBI / IMD / CIR No. 2/166256/ 2009 dated June 12, 2009 has changed the norms for valuation of debt securities held by mutual funds. Now the fund houses would be needed to value their funds nearer to market levels. SEBI has now shifted back to its valuation norms practiced till October last year, when it had allowed the fund houses to use a wider margin in valuing their debt securities. With this change in the permissible mark-up and mark-down levels -- the margins allowed above and below the exact market value -- the fund houses would be allowed lesser margin levels. As per the new norms, Mutual Funds would be allowed a mark-up (the upward permissible margin) of 100 basis points and a mark- down of 50 basis points (the downward margin) for rated debt securities with maturity duration of up to two years. Earlier in October 2008, SEBI had raised the mark-up and mark-down for such securities to 500 basis points and 150 basis points, respectively.

A copy of the circular is available here.