SEBI Directs Mutual Funds To Value AT-1 Bonds Based On Yield-To-Call
This recommendation applies only to the valuation of AT-1 bonds under Ind AS 113, not to other purposes.
Capital markets regulator SEBI on Monday said that mutual funds will value Additional Tier 1 or AT-1 bonds based on yield to call (YTC) basis. Yield to call is the expected return an investor gets if they buy a bond and hold it until the issuer repurchases it on the call date, before maturity.
This came after the National Financial Reporting Authority (NFRA) recommended that AT-1 bonds should be valued based on yield to call to align with market practices and Ind AS 113 principles.
This recommendation applies only to the valuation of AT-1 bonds under Ind AS 113, not to other purposes.
"In order to align the valuation methodology with the recommendation of NFRA, it has been decided that the valuation of AT-1 bonds by mutual funds shall be based on Yield to Call," SEBI said in a circular.
However, for all other purposes, the deemed maturity of perpetual bonds will still follow the guidelines in the Master Circular. AT1 bonds are issued by banks with no maturity date, but they include a call option.
