SEBI has asked AMFI to appoint an agency that can value market linked debentures (MLDs).
Simply put, issuers of such securities will have to appoint a third party valuation agency which is appointed by AMFI. SEBI said, “It has been decided that valuation of MLDs shall be carried out by an agency appointed by AMFI for the purpose of carrying out valuation (hereinafter referred as AMFI appointed valuation agency). It shall be mandatory for the issuer to appoint a third party valuation agency which shall be an AMFI appointed valuation agency.”
MLDs are bonds where returns are linked to a certain benchmark like Nifty, inflation and 10-year g-sec yield. For instance, MLDs may offer 8% if Nifty crosses 10,000 mark (If it is linked with Nifty). Many large companies like Tata Capital and L&T Financial issue MLDs.
Fund houses offer MLDs mostly in their structured debt funds through AIF and PMS route. In fact, many banks, NDs and wealth management boutiques firm distribute these debentures extensively to their HNI clients. These investors usually sell MLDs in stock exchange platform before its maturity to avail the benefits of lower tax of 10% with indexation (capital gains tax on debt securities after three years) as against 20% with indexation in debt funds.
Only a handful of debt funds have exposure to such securities in mutual funds.
