SEBI Introduces Mark-To-Market Valuation for Repo Transactions by Mutual Funds

Securities and Exchange Board of India has mandated that mutual funds value repo transactions on a mark-to-market basis, starting January 2025. This change aims to bring consistency and transparency to the valuation of money market and debt securities, address regulatory concerns, and protect investors.

Repo Transactions to Be Marked-To-Market

Previously, repo transactions with a tenor of up to 30 days were valued on a cost-plus-accrual basis.

However, SEBI has now mandated that all such repo transactions, including tri-party repos (TREPS), be valued on a mark-to-market basis, bringing uniformity across money market and debt securities.

This move is intended to address concerns over regulatory inconsistencies and ensure a level playing field for mutual funds in their valuation practices.

Clarification on Short-Term Deposits and Securities

The circular also clarified that short-term deposits with banks, pending deployment, will continue to be valued on a cost-plus-accrual basis.

Additionally, mutual funds are required to obtain valuations for all repo transactions (except for overnight repos) from authorized valuation agencies.

In cases where security-level prices are unavailable for new securities, funds can use the purchase yield or price on the date of allotment for valuation.

Impact on Mutual Funds

These new guidelines are designed to enhance transparency and consistency in the valuation process, which is vital for protecting investor interests.

The updated rules will come into effect on January 1, 2025, giving mutual funds time to adjust to the new valuation framework.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.