Debt fund NAVs fall as new norms set in

On the first day of change in valuation norms for debt schemes, 24% of such funds reported a fall in NAVs as compared to last Friday.

Long-term debt category funds, namely medium and short-term funds, took a beating while liquid plus schemes (barring two) saw a rise in NAV.

However, it is also quite likely the fall in NAV for these funds could have taken place for reasons other than valuation norms change.

Out of the 588 debt schemes, over 139 schemes saw dip in their NAV on August 2 compared to July 30. Since most funds don’t declare NAVs on Sundays, so July 30 figures were taken for the study. Market regulator Securities and Exchange Board of India (Sebi) had earlier mandated all fund houses to mark-to-market all debt securities with remaining maturity of over 91 days from August 1. Earlier, it was 182 days. And higher interest rate scenario in the economy seems to have hit some debt funds, which now have to mark-to-market instead of smoothening interest inflows through the method of amortisation.

Sebi had deferred the deadline for its implementation to August 1 from July 1, and interestingly, liquid plus schemes had seen huge redemption in June. Scuh schemes were structured few years back to benefit from the earlier valuation loophole.

With the new Sebi rule in place, most fund managers have been proactive in order to protect losses for existing investors. K. Ramakumar, head, fixed income at Sundaram BNP Paribas Mutual Fund said, “We had already started marking-to market the portfolio from July itself based on the new rule. He added Sundaram schemes did not fluctuate much. NAV of Sundaram BNP Paribas Income plus, which is a liquid plus scheme, rose a tad 0.02% on August 2.

The highest fall in NAV was seen in LIC Bond fund, a medium term debt fund by 2.97%.

Source: http://www.financialexpress.com/news/Debt-fund-NAVs-fall-as-new-norms-set-in/655700/