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SEBI Alters Debt Valuation Rules

The market regulator has taken the step to ensure there are no discrepancies in the way valuations of debt securities is done

Market regulator, the Securities and Exchange Board of India (SEBI) has issued a direction to all mutual funds and the Association of Mutual Funds in India (AMFI) saying that the method of valuations of debt securities by mutual funds has been restored to what it was in 2002.

After the October crisis had wreaked havoc among mutual funds, when there was a rush of redemptions that forced AMCs to run to the government for a bailout, SEBI had changed the rules to give funds somewhat more flexibility in valuing these securities at a time when the debt markets were dysfunctional.

However, because this raised the fears of mis-valuation, SEBI has rolled back the increased flexibility. Now, with a view to ensure that the value of debt securities reflect the current market scenario in calculation of net asset value (NAV), SEBI has reduced the discretionary mark up and mark down to the same level as it always had been.