Capital markets regulator Sebi on Friday came out with a new framework with regard to valuation of securities, having multiple put options, held by mutual funds. The new framework will be applicable with effect from October 1, 2021, the Securities and Exchange Board of India (Sebi) said in a circular.
In respect of valuation of securities with multiple put options present “ab-initio", wherein put option is factored into valuation of the security by the valuation agency, Sebi has taken certain decision based on the recommendation of its mutual fund advisory committee. Under the framework, if the put option is not exercised by a mutual fund while exercising the put option would have been in favour of the scheme, fund houses will have to give justification for not exercising such option to the valuation agencies, board of AMC (asset management company) and Trustees, Sebi said.
The explanation must be given on or before the last date of the notice period. The valuation agencies will not take into account the remaining put options for the purpose of valuation of the security. The put option will be considered as ‘in favour of the scheme’ if the yield of the valuation price ignoring the put option under evaluation is more than the contractual yield or coupon rate by 30 basis points, the regulator said. The move will ensure that the fund managers exercise their opinion properly and conduct the fund management in a proper way, Sandeep Bagla, CEO of Trust AMC said.
“These operational guidelines of Sebi will ensure that mutual funds have proper systems to uprise the fund management team, that there’s a put option coming and they have to decide on whether to exercise the option or not whichever is beneficial for the scheme holders," he added.