Sebi rejigs yardsticks for easy calculation of net asset values

In view of the improved liquidity scenario in the domestic debt market, market regulator Securities and Exchange Board of India (Sebi) has decided to reduce the discretionary mark-up and mark-down levels applicable for both rated and unrated debt securities for calculating their net asset value (NAV).

During October November 2008, when the MF industry was facing their worst ever liquidity crisis, asset management companies' (AMC) found it hard to sell their debt assets as it was difficult to value them. Following the demand from the MF industry, Sebi, in late 2008, decided to enhance the discretionary mark-up and mark-down level for valuing the assets that made it easier for the asset management companies to calculate the value of their debt instruments.

K Ramakumar, senior vice-president and head fixed income, Sundaram BNP Paribas Asset Management Company, said, "Now that the liquidity scenario has drastically changed, it doesn't make any sense to continue with the extra flexibility that the MF industry was given during Oct-Dec 2008 crisis."

Murthy Nagarajan, head - fixed income, Mirae Asset Global, said, "Different people used to book the same debt instrument at different rate since the spread was very high. Reducing the discretionary mark-up and mark-down level would ensure that the value of debt instruments would largely be in line across the industry."

In a circular issued to asset management companies, for a rated instruments with duration up to two years, the revised discretionary mark-up and mark-down level for calculating the net asset value (NAV) stand at 100 bps (1%) and 50 bps (0.5%) from the earlier level of 500 bps (5%) and 150 bps (1.50%), respectively. Similarly, for a rated instruments with duration over two years, the proposed mark-up and mark-down levels have been fixed at 75 bps (0.75%) and 25 bps (0.25%), respectively, from the previous level of 400 bps and 100 bps.