**Summary:**
This circular, reference number SEBI/HO/IMD/DF4/CIR/2021/593, issued by the Securities and Exchange Board of India (SEBI) on July 09, 2021, addresses the valuation of securities with multiple put options present *ab initio* for Mutual Funds (MFs) and Asset Management Companies (AMCs). It builds upon previous circulars MFDCIR/89/22000 dated September 18, 2000, and SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019, concerning the valuation of securities with put/call options.
The circular outlines that if a Mutual Fund does not exercise a put option that would have been beneficial to the scheme (defined as a yield of the valuation price ignoring the put option being more than the contractual yield/coupon rate by 30 basis points), the Mutual Fund must provide a justification to the Valuation Agencies, Board of AMC, and Trustees on or before the last date of the notice period. Furthermore, in such cases, the Valuation Agencies are instructed not to consider any remaining put options for the valuation of the security.
This directive, stemming from the recommendation of the Mutual Fund Advisory Committee, is issued under Section 11(1) of the Securities and Exchange Board of India Act, 1992, and Regulation 77 of SEBI (Mutual Funds) Regulations, 1996. It aims to protect the interests of investors, promote the development, and regulate the securities market. The circular is effective from October 01, 2021.
For further information, Lamber Singh, Deputy General Manager, can be contacted at Tel no.: 022-26449667 or via email at lambers@sebi.gov.in.
Key Entities Referenced
Securities and Exchange Board of India: Regulatory body for securities market in India, also known as SEBI.
Mutual Funds: Collective investment schemes that pool money from many investors to purchase securities.
Asset Management Companies: Companies that manage investment funds for individuals and institutions.
Association of Mutual Funds in India: Industry association of mutual funds in India, also known as AMFI.
SEBI Circular No. MFDCIR8922000: A previous circular issued by SEBI regarding valuation of securities with put call options.
SEBI Circular No. SEBIHOIMDDF4CIRP2019102: A previous circular issued by SEBI regarding valuation of securities with put call options.
Securities and Exchange Board of India Act, 1992: The act of parliament that established SEBI and defines its powers and functions.
SEBI Mutual Funds Regulations, 1996: Regulations governing the operations of mutual funds in India.
CIRCULAR
SEBI/HO/IMD/DF4/P/CIR/2021/593 July 09, 2021
All Mutual Funds (MFs)/
Asset Management Companies (AMCs)/
Trustee Companies/ Boards of Trustees of Mutual Funds/
Association of Mutual Funds in India (AMFI)
Sir / Madam,
Sub: Valuation of securities with multiple put options present ab-initio
Reference: Provisions for “Valuation of securities with Put / Call options” in SEBI Circular No.
MFD/CIR/8/92/2000 dated September 18, 2000 and SEBI Circular No.
SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019.
1. In respect of valuation of securities with multiple put options present ab-initio wherein put
option is factored into valuation of the security by the valuation agency, the following is
decided based on the recommendation of Mutual Fund Advisory Committee:
If the put option is not exercised by a Mutual Fund, while exercising the put option would
have been in favour of the scheme;
i. A justification for not exercising the put option shall be provided by the Mutual Fund
to the Valuation Agencies, Board of AMC and Trustees on or before the last date of
the notice period.
ii. The Valuation Agencies shall not take into account the remaining put options for the
purpose of valuation of the security.
2. The put option shall be considered as ‘in favour of the scheme’ if the yield of the valuation
price ignoring the put option under evaluation is more than the contractual yield/coupon rate
by 30 basis points.
Page 1 of 23. Applicability: The circular shall be applicable with effect from October 01, 2021.
4. This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities
and Exchange Board of India Act, 1992, read with the provisions of Regulation 77 of SEBI
(Mutual Funds) Regulations, 1996, to protect the interests of investors in securities and to
promote the development of, and to regulate the securities market.
Yours faithfully,
Lamber Singh
Deputy General Manager
Tel no.: 022-26449667
Email: lambers@sebi.gov.in
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