Withdraw This Valuation Directive
Quick takes, analyses and macro-level views on all contemporary economic, financial and political events.
The Securities and Exchange Board of India’s (Sebi) directive that mutual funds value perpetual bonds with special characteristics as if they would be redeemed in 100 years is disruptive and should be withdrawn. The present value of a bond’s maturity value 100 years from now would be a fraction of the value imputed on the assumption that the bond, which comes with call and put options, would be called by the issuer in the foreseeable future.
The Sebi directive would force mutual funds to book losses, once it kicks in from the beginning of April. Investors would seek to redeem their units and the funds, to dump the bonds, causing a major slump in unit values for no adverse development in a recovering economy.