Sebi to MFs: Report about changes in terms of investments to CRAs, valuation agencies

Regulator Sebi has asked mutual fund houses to inform valuation agencies and credit rating agencies immediately about any changes in terms of investments, including extension in the maturity of a money market or debt security, along-with reasons for such changes.

A money market fund, in market parlance, is an open-ended mutual fund which invests in short-term debt securities like treasury bills and commercial paper. Debt security fund invests in fixed income securities like bonds and treasury bill.

"Any changes to the terms of investment, including extension in the maturity of a money market or debt security, shall be reported to valuation agencies and Sebi registered Credit Rating Agencies (CRAs) immediately, along-with reasons for such changes," the regulator said in a circular issued on Wednesday.

Earlier, fund houses were required to inform the same to valuation agencies only.

In September, the Securities and Exchange Board of India (Sebi) had asked mutual funds to report about any changes to terms of an investment, which may have an impact on valuation, to valuation agencies immediately.

The markets watchdog also directed mutual fund houses to follow "waterfall" approach for the valuation of money market and debt securities.

Under this approach, all traded securities would be valued on the basis of traded yields, subject to identification of outlier trades by the valuation agencies.

"Any extension in the maturity of a money market or debt security shall result in the security being treated as "default", for the purpose of valuation," Sebi noted.