Mutual Funds mark-to-market-debt-mf

Mark-to-market for debt mutual funds

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Mark-to-market (MTM) valuation in debt mutual funds means underlying bond holdings are valued daily based on prevailing market prices rather than amortised cost. SEBI mandated MTM for most debt-fund holdings from the early 2010s and tightened the framework periodically.

MTM mechanics

Daily valuation

  • Each bond holding valued at daily-published market price.
  • For liquid bonds: market quote-based.
  • For illiquid bonds: model-based valuation per mutual fund valuation agencies .

Impact on NAV

  • Interest-rate moves directly affect NAV.
  • Credit deterioration mark-downs immediate.
  • Provides transparent daily NAV reflecting current portfolio value.

Pre-MTM: Amortised cost

Before MTM:

  • Bonds carried at amortised purchase price.
  • NAV more stable but less reflective of current value.
  • Created opacity around true scheme value.

Implications

For investors:

  • Daily NAV transparency.
  • Interest-rate volatility visible in NAV.
  • Credit events immediately reflected.

For AMCs:

  • Daily reconciliation discipline.
  • Risk-management framework focused on duration and credit.

See also

External references

References

  1. SEBI (Mutual Funds) Regulations 1996.
  2. AMFI Best Practice Guidelines.

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