MFs dress up navs of schemes
Amid hardening interest rates and a drop in bond prices, some mutual fund houses are cutting off-market deals and resorting to creative accounting to hide mark-to-market losses.
MUMBAI: Amid hardening interest rates and a drop in bond prices, some mutual fund houses are cutting off-market deals and resorting to creative accounting to hide mark-to-market losses and prop up net asset values (NAVs) of liquid and floater schemes.
So, the actual NAV���which reflects the price of a mutual fund unit���is lower than what some MF schemes are reporting.
In these deals, a mutual fund scheme sells a floating rate bond (floater) to another fund at an artificially high rate in the morning and buys it back at the end of the day. While the funds make no money from such deals, the transactions give the floating bonds���in which mutual funds have invested���a higher, unrealistic valuation.
These floating bonds are issued by finance companies and the returns are linked to floating interest rate benchmarks such as Mibor or INBMK.
So, the actual NAV���which reflects the price of a mutual fund unit���is lower than what some MF schemes are reporting.
In these deals, a mutual fund scheme sells a floating rate bond (floater) to another fund at an artificially high rate in the morning and buys it back at the end of the day. While the funds make no money from such deals, the transactions give the floating bonds���in which mutual funds have invested���a higher, unrealistic valuation.
These floating bonds are issued by finance companies and the returns are linked to floating interest rate benchmarks such as Mibor or INBMK.
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