SEBI Aligns Mutual Fund Valuations with NFRA Recommendations for AT-1 Bonds

The Securities and Exchange Board of India (SEBI) announced that mutual funds will now value Additional Tier 1 (AT-1) bonds based on Yield to Call (YTC) basis. This shift aligns with the National Financial Reporting Authority's (NFRA) recommendation, aiming to bring uniformity with market practices and Ind AS 113 principles.

Capital markets regulator SEBI on Monday declared that mutual funds will start valuing Additional Tier 1 (AT-1) bonds based on Yield to Call (YTC) methodology.

Yield to Call represents the expected return an investor earns if they hold a bond until the issuer repurchases it on the call date, rather than until maturity.

This decision follows the National Financial Reporting Authority's (NFRA) recommendation for AT-1 bond valuation to adhere to market practices and Ind AS 113 principles.

''To align the valuation methodology with NFRA's recommendation, it has been decided that the valuation of AT-1 bonds by mutual funds shall be based on Yield to Call,'' SEBI stated in a circular.

However, for all other purposes, the deemed maturity of perpetual bonds will continue to follow the guidelines outlined in the Master Circular. AT1 bonds, typically issued by banks, have no fixed maturity date but include a call option.