The Association of Mutual Funds in India (AMFI) has released a set of guidelines for valuation of perpetual bonds or AT-1 bonds.
This comes days after SEBI came out with revised norms on valuation of AT-1 bonds. In a circular released on March 22, the markets regulator had also advised AMFI to issue a set of guidelines on the subject.
The AMFI guidelines are in line with the norms issued by SEBI. A key provision of the guidelines is a requirement for funds to consider the Macaulay duration of the AT1 bonds according to the Sebi-mandated glide path.
Through its circular, SEBI has asked mutual funds to value perpetual bonds as 10-year debt paper. This time period will be gradually hiked to 20, 30 and then 100 years.
According to the AMFI circular, valuation of AT1 bonds is to be done according to traded prices.
In case, none of the securities of the bank are traded, MFs can refer to traded price of securities issued by a similar bank with similar maturities.
If even that hasn't happened, past trades can be referred to.
At present, SBI securities are used as a benchmark across all maturities for AT-1 bonds.
AMFI has also made efforts to bring more clarity on pricing of bonds. From April 1, mutual fund schemes will have to start disclosing yield to call and yield to maturity of the bond security.
This move will help investors understand how the bond is getting priced in markets, by other bondholders.
