Sebi relaxes valuation norms for mutual funds

The Securities and Exchange Board of India (Sebi) on Thursday relaxed valuation norms on money and debt market instruments held by mutual funds in the wake of the loan moratorium for companies by the Reserve Bank of India on account of the business disruptions caused by the ongoing lockdown.

The capital markets regulator said if valuation agencies are of the view that a delay in interest or principal amount or extension of maturity of a security has arisen solely due to lockdown or in light of the RBI moratorium, which has created temporary operational challenges in servicing debt, they may not consider it as default for valuing debt market securities held by fund houses. Valuations of debt market instruments for mutual funds’ net asset value (NAV) are done by the arms of rating agencies.

“In view of the nationwide lockdown and the three-month moratorium/deferment on payment permitted by RBI, a differentiation in treatment of default, on a case-to-case basis, needs to be made as to whether such default occurred solely due to the lockdown or loan moratorium,” Sebi said in a circular.


With this, valuation agencies may not treat the default due to the moratorium in NAV calculations. The move comes as a relief to mutual funds and borrowing companies as a delay in payment would have hit NAVs of debt schemes, which have to mark down values based on the valuations assigned by agencies.

“The mutual fund industry had asked for this because tomorrow it should not be seen as non-compliance when inspection happens,” said A Balasubramanian, CEO, Aditya Birla Sun Life Asset Management.

The regulator also said that if there is any difference in the valuation of securities provided by two valuation agencies, the conservative valuation should be accepted.