Revised Valuation Guidelines For valuation of securities under NPS schemes and other pension scheme(s) administered by PFRDA

1 Annexure Valuation Guidelines, 2019 1. Introduction .......................................................................................................................................... 2 2. Principles of Valuation .......................................................................................................................... 2 3. Objective ............................................................................................................................................... 3 4. Definitions ............................................................................................................................................. 3 5. Valuation of Equity and Equity related Instrument .............................................................................. 4 6. Valuation of Shares on Merger, De-merger and Other Corporate Action Events: ............................... 6 7. Valuation of Debt Securities (other than government securities) ........................................................ 7 8. Government Securities ......................................................................................................................... 9 9. Valuation of Mutual Fund Units ............................................................................................................ 9 10. Miscellaneous ................................................................................................................................... 9 11. Valuation policy for securities below investment grade ................................................................ 10 12. Valuation of securities not covered under the current Valuation Policy ....................................... 10 13. Methodology of valuation adopted by the third party valuation agency ...................................... 10 14. Changes or amendments to the policy ........................................................................................... 11 2 1. Introduction As per Regulation 15 of the PFRDA (Pension Fund) Regulations, 2015, the securities held in the name of National Pension System Trust and managed by the pension funds under the pension schemes regulated by the Authority shall be valued in accordance with the guidelines issued by this Authority from time to time. Valuation of securities held under the NPS Schemes is a vital activity undertaken by the Pension Fund at the day end to arrive at the scheme wise Net Asset Value (NAV) at which subscriber transactions such as purchase/redemption/switch of units are undertaken. Presently ‘mark to market’ accounting practices have been adopted for valuation of NPS securities and the valuation of assets are done on the basis of guidance provided under the “Guidelines for preparation of Financial Statements and Auditors Report of Schemes under NPS” which were adopted in 2012-13. As these guidelines have been issued in the year 2012-13, several changes have taken place in the practices being followed by financial sector intermediaries based on the guidance issued by other financial sector regulators. Therefore, the Authority in exercise of its powers under sub-clause (b) of sub-section (2) of Sec 14 of the PFRDA Act, 2013, read with Regulation 15 and Regulation 43 of the PFRDA (Pension Fund) Regulations, 2015 issues these guidelines which shall be called as Valuation Policy guidelines, 2019 and shall be applicable to all investments made under National Pension System (NPS) and other schemes approved/administered by PFRDA and managed by Pension Funds. These guidelines shall supersede earlier guidelines/instructions issued in the matter and shall be followed henceforth. Pension Funds, NPS Trust and third party valuation agency (appointed by NPS Trust), shall ensure necessary mechanism for implementation of the same, from the effective date. 2. Principles of Valuation The valuation of investments shall be based on the principles of fair valuation i.e. valuation shall be reflective of the realizable value of the securities/assets. The valuation shall be done in good faith and in true and fair manner through appropriate valuation policies and procedures. The responsibility of true and fairness of valuation and correct NAV based on the scrip level prices provided by the third party valuer shall be of the Pension Funds. The Pension Funds shall value the assets/ securities at fair value at all times by following the valuation guidelines issued by PFRDA and the third party valuation services facilitated by NPS Trust. NPS Trust shall be responsible for putting in place a system whereby the valuation of assets by Pension Funds is uniform and consistent. 3 3. Objective The objective of these guidelines is to specify methodology and the manner in which securities/assets should be valued by Pension Funds to ensure consistent valuation and transparency. These guidelines shall be reviewed annually or more frequently by NPS Trust (preferably before the 2nd quarter of every financial year) to ensure the appropriateness and accuracy of the methodologies used and its effective implementation in valuing the securities/assets. If any changes are required in the valuation guidelines including the methodology, the same shall be recommended by them to PFRDA along with justifications for such a change and recommended course of action. 4. Definitions a. Traded Equity Securities An equity and / or equity related securities (such as preference shares, convertible debentures, equity warrants etc.) would be considered as traded if the security is traded on any stock exchange provided such date is not more than thirty days prior to valuation date. b. Non-traded Equity Securities: When an equity and / or equity related securities (such as preference shares, convertible debentures, equity warrants etc.) is listed but not traded on any stock exchange for a period of thirty days prior to the valuation date, the scrip must be treated as a ‘non-traded’ security. c. Thinly Traded Debt Securities A debt security (other than Government Securities) shall be considered as a thinly traded security if, on the valuation date, there are no individual trades in that security in marketable lots (currently applicable) on the principal Stock Exchange or any other Stock Exchange. d. Unlisted Equity Securities If on a valuation date a security is not listed on any recognised stock exchanges, it would be considered as unlisted security. 4 e. Recognized Stock Exchange National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) would be considered as recognized stock exchanges in India. f. Principal Stock Exchange National Stock Exchange (NSE) would be considered as principal stock exchange. g. Secondary Stock Exchange Bombay Stock Exchange (BSE) would be considered as secondary stock exchange. The detailed Asset wise/security valuation policy, procedure and methodology for investments made by the Pension Funds is as under: 5. Valuation of Equity and Equity related Instrument S. No. Equity Instruments/ ETFs Valuation Methodology a) Securities traded on valuation day As per closing price of the Principal Stock Exchange. In case, it was not traded on principal stock exchange then the closing price of the secondary stock exchange. b) Securities not traded on valuation day When a security is not traded on any stock exchange on a particular valuation day, the value at which it was traded on the principal stock exchange or secondary stock exchange, as the case may be, on the earliest previous day may be used provided such date is not more than 30 days prior to valuation date. c) Securities suspended for reasons other than corporate actions i) In case trading in an equity security is suspended upto 30 days, then the last traded price would be considered for valuation of that security. ii) If an equity security is suspended for more than 30 days, then the valuation may be determined on case to case basis in consultation with PFs, NPS Trust with prior approval of the Authority. d) Index Funds Valued at latest NAV available on AMFI website. Presently, previous day’s Scheme NAVs are being considered as Mutual Fund houses declare NAV at 9:00 pm and PFs cut off time for NAV declaration is 8:00 pm. e) Exchange Traded Funds As per the closing price of the day of the respective stock exchange. 5 f) IPO Application 1. IPO application money pending allotment at cost basis. 2. Post allotment but awaiting listing at allotment price. g) Valuation of Futures and Options Options: i) If traded, then closing price to be considered ii) If not traded, then theoretical price based on Black Scholes Model may be considered. Futures: All futures shall be valued at the settlement price declared by the exchanges where they are traded in. h) Valuation of Warrants