Valuation of Mutual Funds

How are Mutual Funds Valued?

The value of a mutual fund represents its price per share. The Net Asset Value (NAV) is calculated in dollars and the value per share is derived by dividing the total value of all assets in the portfolio minus liabilities by the outstanding number of fund shares. NAV assists in setting the price per unit of a mutual fund. Outstanding shares are shares that are owned by the shareholders.

The NAV of a fund will change during a particular trading day and the price of stocks, bonds, precious metals and commodities will fluctuate. The final NAV will be determined based on the market price of the asset at the end of the trading day. For some mutual funds, the Net Asset Value is determined multiple times during a trading day.

Mutual Fund Valuation

SEBI has laid down various rules and guidelines to Asset Management Companies (AMCs) for the valuation of various mutual fund assets. These are briefly explained below:

Equity and Equity Related Securities

  • Traded Equity and Equity Related Securities – Traded securities, including Cumulative Convertible Preference Shares, Normal Preference Shares, Partly Paid-up Equity Shares and Rights, are valued at the closing price that has been quoted in the Stock Exchange. If the security is not traded in the Stock Exchange on a particular day, the value that has been quoted on the previous trading day can be used to value the asset. The only condition is that the earliest possible trading day that is taken into consideration should not be older than 30 days prior to the date of valuation. Ideally, the stock exchange that is used as the benchmark is the National Stock Exchange (NSE) and if the securities aren’t traded on the NSE, the price of the asset on the Bombay Stock Exchange (BSE) is taken into consideration.
  • Thinly Traded or Non-Traded Equity and Equity Related Securities - Thinly Traded or Non-Traded Equity and Equity Related Securities include Cumulative Convertible Preference Shares, Normal Preference Shares, Partly Paid-up Equity Shares and Rights. A thinly traded equity or equity related security are those assets that are traded at less than Rs. 5,00,000 in a month, with a total volume of not more than 50,000 units.

In case this security has not been traded for a period more than 30 days, then the Net Worth per share will be calculated as follows: [Share Capital + Reserves (Except revaluation reserves) – Miscellaneous expenditure and Debit Balance in P&L Account] / Number of Paid-up Shares.

The average capitalization rate for the fund, which is based on NSE or BSE information, will be discounted by 75% in order to calculate the P/E Ratio. In order to arrive at fair value per share, a 10% discount for illiquidity is applied to the average of net worth value per share and capital earning value.

Valuation of Suspended Security

The last traded price will be taken into consideration for valuation of an equity that has been suspended for not more than 30 days. The fair valuation guidelines applicable for thinly traded securities will be applicable for valuation of equity security that has been suspended for a period above 30 days.

Valuation of Unlisted Securities

The valuation method for unlisted equity shares of an organization is based on the audited balance sheet which is available within nine months of the year end. Net worth per share is calculated as follows:

[Share Capital + Free Reserves (Except revaluation reserves) – Miscellaneous expenditure] / Number of Paid-up Shares.


Share Capital + Consideration on exercise of Warrants/Options receivable/received by the company + Free Reserves (Except revaluation reserves) – Miscellaneous expenditure and Debit Balance in P&L Account] / Number of Paid-up Shares; whichever is the lowest.

The calculation will be based on audited accounts only. If the EPS is a negative value, then it will be considered as zero for that year, while calculating the capitalized earning.

Valuation of Illiquid Securities

Illiquid securities are thinly traded, unlisted and non-traded equity shares. The aggregate value of these shares should not be more than 15% of the total assets available in the mutual fund scheme. If the aggregate value of illiquid securities is more than 15% of the total assets, then the value assigned is zero.

Qualified Institutional Placement (QIP) – Equity Shares

Equity Shares that are allotted through the Qualified Institutional Placement process is valuated in a manner similar to the valuation of listed equity shares. This means that the calculation is based on the price fixed on listed equity shares in a trading day.

Valuation of Preference Shares

Traded securities will be valued at the price quoted at the end of a trading day. The primary stock exchange that is taken into consideration is the BSE and the secondary stock exchange that will be considered for all mutual fund schemes except SBI Nifty Index Fund is National Stock Exchange (NSE). Non-traded non-convertible preference shares are valued based on the same method of calculation as non-convertible debentures and bonds under the Debt Security segment. Non Traded convertible preference shares are valued based on the guidelines set for equity valuation.

Valuation of Debt Securities

  • Debt Securities with maturity above 60 days – The valuation of Debt Securities will be based on the Scrip level prices/average of prices that has been provided by ICRA and CRISIL. When a new security is bought, ICRA and CRISIL offer scrip level prices from T+1 date and these are valued based on the weighted average yield of the securities. SEBI regulations permit fund managers to mark the security yields up or down in order to portray fair valuation based on the criteria given below:
Maximum Mark Up (Bps) Maximum Mark Down (Bps)
Securities less than or equal to 365 days 150 -50
Securities greater than 365 days 75 -25
  • Debt Securities with maturity less than 60 days – Debt Security Instruments are valued based on last valuation price or on an amortization basis, from maturity to cost. The condition to this rule is that the value taken is one that is the most recent and it should be within ± 0.10% of the reference price. Reference price is the value derived from the benchmark yield ± spread available on account of the trade. Agencies such as CRISIL or AMFI appointed independent agencies, will provide the benchmark yield.

Valuation of Gold Exchange Traded Funds

Under the Gold Exchange Traded Funds, the value of gold is determined based on the AM fixing price set by the London Bullion Market Association (LBMA). The value is calculated in US Dollars and it is calculated per troy ounce of gold having purity of 995.0 parts per 1000. It is subject to the following conditions:

  • As per standard conversion rates, the conversion will be based on metric measure.
  • US Dollar conversion to INR will be made in accordance to the RBI reference rate that is declared by the Foreign Exchange Dealers Association of India (FEDAI).
  • The reference price considered for the gold available under the Gold Exchange Traded Funds will be as per the standards of LBMA if it has greater fineness.

GST rate of 18% applicable for all financial services effective July 1, 2017.

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