Archive / Mutual Fund Distributors / Net Asset Value, Total Expense Ratio & Pricing of Units

nism-series-va-fair-valuation-principles-eighth-schedule[ MUTUAL FUND DISTRIBUTORS ]

According to the Eighth Schedule of SEBI (Mutual Funds) Regulations, what is the core objective of the Fair Valuation Principles, and who bears ultimate responsibility for true and fair valuation?

[ A ]Valuation must always equal the historical acquisition cost of assets, and responsibility rests with unitholders.

[ B ]Valuation must reflect the realizable value of securities in good faith to ensure fair treatment to all unitholders, and ultimate responsibility rests with the Asset Management Company (AMC).[ CORRECT ]

[ C ]Valuation must be determined solely by unitholder online voting on social media platforms.

[ D ]Valuation must guarantee a minimum 15% annual portfolio return, and responsibility rests with the stock exchange.

Takeaway

Option B is correct: Valuation must reflect the realizable value of securities in good faith to ensure fair treatment to all unitholders, and ultimate responsibility rests with the Asset Management Company (AMC).

Derivation

SEBI's Fair Valuation Principles mandate that all portfolio investments must be valued at their true, fair, and realizable market value in good faith, ensuring equitable treatment to both entering and exiting unitholders across all schemes. Under Principle 7, the ultimate responsibility for true and fair valuation and correct NAV calculation rests strictly with the Asset Management Company (AMC), which must deviate from established models if they fail to reflect fair value. This tests statutory valuation governance. The common error is assuming third-party valuation agencies absorb legal responsibility.

Why the others fail

A — Valuation must always equal the historical acquisition cost of assets, and responsibility rests with unitholders.

Historical cost valuation is prohibited because it fails to capture mark-to-market appreciation or credit depreciation over time.

C — Valuation must be determined solely by unitholder online voting on social media platforms.

Valuation is an objective, regulated financial accounting process governed by SEBI rules, not subjective unitholder polling.

D — Valuation must guarantee a minimum 15% annual portfolio return, and responsibility rests with the stock exchange.

Fair valuation measures prevailing asset worth and does not guarantee investment returns or delegate responsibility to stock exchanges.