SEBI to set norms for pricing of corporate bonds in MFs

Securities and Exchange Board of India (SEBI) soon may come with corporate bond valuation methodology. All the mutual funds would have to adopt and implement this valuation methodology. These guidelines on valuation of corporate bonds will bring uniformity among the mutual funds based on which Net Asset Value (NAV) would be derived. SEBI may also develop a regulatory framework for the pricing agencies who would be engaging in providing the corporate bond pricing services.
 
Since Asset Management Companies (AMCs) have to quote NAVs on daily basis, mark-to-market valuation becomes difficult as debt securities are not liquid as compared to stocks. So AMCs have to depend on rating agencies to come up with NAV. Rating agencies value debt securities on an accrual basis and they provide their own opinion on it based on historical data and some of the assumptions which may not show the clear possible default.
 
Post the IL&FS fiasco, SEBI has become more active with respect to the mutual fund's dealing in debt instruments and securities and is trying to minimize such risks in debt mutual funds. Even SEBI may consider the mark-to-market valuation of debt securities with a maturity of less than 60 days. The uniform guidelines that SEBI may come out with may bring in a lot more transparency to debt held by mutual funds.