Industry experts say that the new guidelines on valuations are aimed at protecting small investors and the rules will make debt markets more efficient.
Mutual fund houses have sought clarity from SEBI on formulation of new valuation methodologies in debt schemes proposed in its circular issued by SEBI yesterday.
“The asset management company shall provide for the periodic review of the valuation policies and procedures to ensure the appropriateness and accuracy of the methodologies used and its effective implementation in valuing the securities/assets. The Board of Trustee and the Board of AMC shall be updated of these developments at appropriate intervals. The valuation policies and procedures shall be regularly reviewed (at least once in a financial year) by an independent auditor to seek to ensure their continued appropriateness,” states the revised SEBI guideline.
“We
need clarity on how to actually action the entire process especially about
formulating the valuation policy. We would like to know how deep the policy
should be,” says Killol Pandya, Head of Fixed Income at Daiwa AMC.
The regulator has asked AMCs to report and disclose all the transactions in debt and money market securities, including inter scheme transfers.
Industry officials say that SEBI is expected to come out with another circular clarifying some of the rules.
“One more circular is expected from SEBI after which there will be some clarification,” says a CEO of a midsized AMC.
“The industry is waiting for a detailed procedure for the valuation policy,” says a sales head of a leading fund house.
The circular also holds AMCs and their sponsors liable to compensate the affected investors and the scheme for any unfair treatment to any investor as a result of inappropriate valuation.
Meanwhile fund houses say that the new rules on valuations are expected to make debt market more efficient and are aimed at protecting small investors.
“The regulations are aimed at making valuation process more transparent. I think this circular is in line with SEBI’s effort to ensure that all debt market instruments are mark to market,” adds Killol.
“SEBI doesn’t want small investors to suffer if large investors exit the fund. If institutional investors redeem and the fund transfers securities on wrong valuations to another fund, the small investors in the new fund suffer because they end up buying securities at the wrong price,” says Arjun Parthasarathy, Editor, investorsareidiots.com.
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Besides valuation norms, fund houses also want to know if the earlier guidelines which require advertisements to show performance of all funds managed by a fund manager will also run parallel in conjunction with the new advertisement rule.
“The new guideline includes all type of communication as advertisement and does away with the usage of rating, ranking, testimonials. However, the released guidelines are still in want of interpretation and an affirmative statement would have been preferred which would clarify the treatment of usage of performance data along with the relevant disclosure; something which could be drawn from the earlier guidelines prescribed for the same,” says Jimmy Patel, CEO, Quantum Mutual Fund.
