March 28, 2001
All Mutual Funds Registered with SEBI/
Unit Trust of India
As you are aware, SEBI issued guidelines for the valuation of securities and identification and provisioning for non-performing assets (debt securities) vide circular no MFD/CIR/8/92/2000 dated September 18, 2000.
Association of Mutual Funds in India (AMFI) has made a representation for certain modification in the guidelines. After examining the matter, the following modifications have been made in the guidelines issued vide aforesaid circular:
Guidelines For Valuation of Securities
1. Thinly Traded Equity / Equity Related Securities
The definition for Thinly Traded Equity / Equity Related Securities given in Section 2(i) of the Guidelines (Pg. 1) shall be replaced by the following definition:
“When trading in an equity/equity related security (such as convertible debentures, equity warrants, etc.) in a month is both less than Rs. 5 lacs and the total volume is less than 50,000 shares, it shall be considered as a thinly traded security and valued accordingly”.
For example, if the volume of trade is 100,000 and value is Rs. 400,000, the share does not qualify as thinly traded. Also if the volume traded is 40,000, but the value of trades is Rs. 600,000, the share does not qualify as thinly traded.
Further it is clarified that in order to determine whether a security is thinly traded or not, the volumes traded in all recognised stock exchanges in India may be taken into account.
2.Thinly Traded Debt Security
The definition for Thinly Traded Debt Security given in first paragraph of Section 2(ii) of the Guidelines (Pg. 1) shall be replaced by the following definition :
“A debt security (other than Government Securities) that has a trading volume of less than Rs. 15 crores for a period of thirty days prior to the valuation date shall be considered as a thinly traded security based upon information provided by the stock exchanges on the volume of trading of debt securities”.
In order to determine whether a security is thinly traded or not the volumes traded in all recognised stock exchanges in India may be taken into account.