SEBI/HO/IMD/PoD1/CIR/P/2024/106 August 05, 2024
To,
All Mutual Funds (MFs)
Asset Management Companies (AMCs)
Trustee Companies/ Boards of Trustees of Mutual Funds
Registrar to an Issue and Share Transfer Agents (‘RTAs’)
Association of Mutual Funds in India (AMFI)
Sir/Madam,
Subject: Valuation of Additional Tier 1 Bonds (“AT-1 Bonds”).
1. This has reference to clause 9.3.1.1 and clause 9.4.2 of the Master Circular No.
SEBI/HO/IMD/IMD-PoD-1/P/CIR/2024/90 dated June 27, 2024 for Mutual
Funds (“Master Circular”), on valuation of bonds with multiple call options.
2. National Financial Reporting Authority (NFRA), in its report to Department of
Economic Affairs, Ministry of Finance, has recommended that since the market
practice for AT-1 bonds has been observed to trade at or quote prices closer to
Yield to Call (YTC) basis, valuation of AT-1 Bonds on Yield to Call basis
(adjusted with appropriate risk spreads) will be consistent with the principles of
market-based measurement under Ind AS 113.
3. NFRA, in its report, has further stated that the above recommendation on YTC
methodology is confined only to the interpretation of Ind AS 113 with reference
to the valuation of AT-1 bonds and the issue of deemed maturity date for other
purposes is outside NFRA’s remit.
4. In view of the above, in order to align the valuation methodology with the
recommendation of NFRA, it has been decided that the valuation of AT-1 Bonds
by Mutual Funds shall be based on Yield to Call.
5. For all other purposes, since liquidity risk of perpetual bonds is required to be
suitably captured, deemed maturity of all perpetual bonds shall continue to be
in line with the clause 9.4.2 of the Master Circular.
6. This circular is issued in exercise of powers conferred under Section 11(1) of
the Securities and Exchange Board of India Act, 1992, read with the provisions
of Regulation 25(19), 47 read with Regulation 77 of SEBI (Mutual Funds)
Regulations, 1996, to protect the interests of investors in securities and to
promote the development of, and to regulate the securities market.
7. The circular is available at www.sebi.gov.in under the link “Legal -> Circulars”.
Yours faithfully,
Peter Mardi
Deputy General Manager
+91-22-26449233
peterm@sebi.gov.in