The Hindu Business Line : ICRA will also appraise mutual funds’ net asset values

Currently, rating agency Crisil is the only valuer for debt funds; but it has been decided to consider ICRA for a second valuer, said Mr A.P. Kurian, Chairman of Association of Mutual Funds in India (AMFI).

“It was thought appropriate that we should have one more valuer,” he added.

As the corporate and fixed income securities are not tradable in the market, a valuer such as Crisil (through a certain methodology based on the relevant yields and market spreads) gives a certain value to those debt securities to mutual fund houses.

Fund houses then use these values to arrive at daily NAVs of their debt schemes. Valuers basically provide a mathematical and statistical matrix from which fund houses derive NAVs.

“The CRISIL Bond Valuation service is being used by all mutual funds so as to ensure the best practice of consistency in their valuation of debt securities. This ultimately benefits the investors in these funds," saidMr Krishnan Sitaraman, Head of CRISIL Fund Services.

The methodology for CRISIL’s Bond Valuation service is based on the SEBI guidelines for valuation of debt securities. The AMFI valuation committee has also given its approval for the valuation methodology used by CRISIL, said Mr Sitaraman.

ICRA in picture

AMFI is considering getting a second party also to be valuer, and they have expressed their interest in ICRA, said Mr Sanjoy Banerjee, Executive Director, ICRA.

It is mandatory for fund houses to use the values given by Crisil, said Mr Badrish Kulhalli, Senior Fund Manager-Debt, Principal PNB Asset Management.

Some analysts said that with a single agency providing valuations, it is easier to compare debt schemes as they would be based on the same framework.

The methodology and process regarding the manner in which two valuers will function is still being worked out by AMFI and others concerned, according to fund officials.

Questions if both valuers should be used, and a mean value taken; or whether one or the other would be chosen by fund houses need to be settled.

Mr Kurian of AMFI felt there was an advantage to getting a second valuation so that an independent figure could be arrived at.

If there is a second valuer, the fund houses could have the option of using either valuer, said Mr Kulhalli.

It is unlikely that the two valuers will give different values, although there might be some minor differences in their numbers, he said.

“The valuations might or might not be the same but our aim is to arrive at a nearest approximation in the current market scenario,” said Mr Banerjee of ICRA.

A second opinion would also help reinforce the values that are being used by a fund house at one point of time, said fund managers.

In the case of banks, valuation of bonds – which is done by Fixed Income Money Market and Derivatives Association – is governed by the RBI. Pension funds are getting valuations for debt instruments done on an in-house basis.

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