Mumbai: To protect long-term investors in debt funds, capital markets regulator Securities and Exchange Board of India (Sebi) has allowed mutual funds (MFs) to value debt papers such as non-convertible debentures and commercial papers closer to their market valuation.
Bold move: Sebi chairman C.B. Bhave. Analysts say the latest move by the regulator will remove bias against long-term investors. Abhijit Bhatlekar / Mint
Fund houses marked their debt papers to a set of values provided by ratings agency Crisil Ltd. They were allowed to value their papers, depending on the security, up to 100 basis points more or 50 basis points less than the values provided by Crisil.
One basis point is one-hundredth of a percentage point.
In a circular issued on Saturday, Sebi said it has increased the limit for fund managers to value debt securities up to 500 basis points more than that of Crisil’s valuation or 150 basis points lesser. For certain other kinds of unrated debt securities, Sebi increased this limit by up to 450 basis points.
“It’s a reflection of Sebi’s understanding the need to be more flexible in debt market rates because market values are dislocated currently,” said Ramanathan K., head of fixed income at ING Investment Managers Ltd.
According to Rupa Kudva, managing director and chief executive of Crisil, net asset values of debt funds, released on a daily basis, weren’t reflecting true market values the past two weeks.
“This move (Sebi’s decision) removes bias against long-term investor(s),” said Kudva.