SEBI vide circular SEBI/IMD/CIR No.16/ 193388/2010 dated February 02, 2010 has modified the provisions related to the valuation of debt and money market instruments by the mutual fund houses. SEBI directed that all money market and debt securities, including floating rate securities, with residual maturity of up to 91 days or over 91 days, should have to be valued at the weighted average price at which they are traded on the particular valuation day. This means that fund houses should calculate a particular scheme’s NAV (Net Asset Value) after taking into account the price movement of the security on the valuation day. This ensures that the value of money market and debt securities in the portfolio of mutual fund schemes reflect the current market scenario.
If securities with residual maturity of up to 91 days are not traded on a particular valuation day, they should be valued on amortisation basis. It also directed that the securities (not traded on a particular valuation day) of residual maturity of over 91 days, should be valued at benchmark yield/ matrix of spread over risk free benchmark yield obtained from agency entrusted for the said purpose by the Association of Mutual Funds of India.
A copy of the circular is available here.
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