Daily MTM for debt mutual funds
Daily mark-to-market (MTM) for debt mutual funds refers to the operational process through which the market value of every debt security held by a scheme is updated each business day, and the resulting changes flow directly into the scheme’s NAV. In India, this process is mandated by SEBI and is operationalised through price feeds from two SEBI-empanelled valuation agencies, with NAVs required to be submitted to AMFI by 11 p.m. each business day.
This article covers the daily operational mechanics of the MTM process. For the conceptual framework and regulatory background, see mark-to-market for debt holdings.
Daily MTM operational timeline
| Time | Event |
|---|---|
| 5:00 p.m. | Fixed income markets (NDS-OM, CCIL) close; final traded yields available |
| 7:00 p.m. | CRISIL and ICRA Analytics publish updated prices for all rated/covered debt instruments |
| 7:00–9:00 p.m. | Fund accountants retrieve agency price feeds; process valuation model |
| 9:00–10:30 p.m. | NAV computation, verification by compliance; approval by fund accountant |
| 11:00 p.m. | NAV submitted to AMFI and published on AMC website |
Price sources for individual instruments
| Instrument type | Primary price source |
|---|---|
| Central government securities (G-secs) | CCIL-NDS-OM final traded prices; CRISIL/ICRA yield matrix for non-traded days |
| State development loans (SDLs) | CRISIL/ICRA valuation matrix based on G-sec yields + SDL spread |
| AAA-rated corporate bonds | CRISIL/ICRA quoted prices or yield matrix |
| Below-AAA rated bonds | CRISIL/ICRA prices; fair value by AMC committee if not covered |
| Commercial paper (CP) / CDs | Amortised cost if residual maturity under 30 days; MTM matrix otherwise |
| Perpetual bonds / tier-1 bonds | CRISIL/ICRA prices, with haircuts mandated by SEBI for perpetual instruments |
How NAV changes with daily yield movements
The relationship between daily yield change and NAV change depends on the portfolio’s modified duration. Each basis point (0.01%) change in yield on a security with modified duration D produces a price change of approximately D × 0.01% in opposite direction.
For a portfolio with average modified duration of 5 years:
- Yields rise 10 basis points: Portfolio price falls approximately 0.5%.
- Yields fall 10 basis points: Portfolio price rises approximately 0.5%.
On days with significant market events (RBI MPC decisions, global rate moves, credit rating announcements), the daily NAV change of a long-duration debt fund can be 0.5%–2% or more in either direction.
Yield-to-maturity (YTM) as a benchmark
The Yield-to-maturity (YTM) of a debt fund portfolio represents the internal rate of return the fund would earn if:
- All securities were held to maturity.
- All coupon payments were reinvested at the same YTM.
- No defaults occurred.
Published monthly in fund factsheets, YTM provides investors with a reference for expected returns over the holding period, assuming the portfolio is held to maturity and market yields do not change further. YTM changes daily as new securities are purchased and as existing securities’ yields change with market conditions.
MTM vs coupon accrual
Each business day, two offsetting forces act on a debt fund’s NAV:
- Coupon accrual: Daily interest accrued on all bonds is added to assets, increasing NAV. This is a steady, positive contribution equivalent to YTM ÷ 365 per day (approximately).
- MTM price change: If market yields rise, the market value of bonds falls, reducing NAV. If yields fall, NAV rises.
On a day of significant yield increase, the MTM loss can exceed the day’s coupon accrual, resulting in a negative daily NAV change for the debt fund. On a day of yield decrease, both coupon accrual and MTM gain contribute positively.
Overnight and liquid funds: limited MTM exposure
Overnight funds hold only instruments maturing the next business day, so MTM price changes are negligible. Liquid funds are restricted to instruments with residual maturity up to 91 days, and securities with residual maturity under 30 days are valued on amortised cost. MTM exposure for liquid funds is therefore limited to the small portion of the portfolio with maturity between 30 and 91 days.
Related articles
- Mark-to-market for debt holdings
- NAV computation methodology
- Side-pocketed scheme
- Net Asset Value (NAV)
- Riskometer
References
- SEBI Circular SEBI/HO/IMD/DF4/CIR/P/2019/102 (24 September 2019).
- SEBI Master Circular for Mutual Funds (2024).
- CRISIL and ICRA Analytics debt pricing methodologies.
- FIMMDA yield curve publications.