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CS Professional · IFSCA - Regulations, Listing and Compliances · Fund Management Services

A scheme managed from GIFT IFSC holds an unlisted bond for which no market quotes exist. At period end, the manager must value it for computing NAV. Which approach is most consistent with the valuation requirements for such funds?

The bond should be valued at fair value under the valuation policy disclosed in the offer document. The policy must be applied consistently, ideally with an independent valuer's support. Cost cannot be kept indefinitely and the manager cannot pick values arbitrarily, since NAV must be fair and comparable across periods.

  1. ACarry it at original cost indefinitely, because no quote is available
  2. BValue it on a fair value basis under the valuation policy disclosed in the offer document, applied consistently and preferably supported by an independent valuerCorrect
  3. CWrite it down to zero until a market quote appears
  4. DLet the manager choose any value each month to smooth the NAV

Explanation

Where market prices are unavailable, the asset must be valued fairly under a documented valuation policy that was disclosed to investors and is applied consistently. Independent valuation supports objectivity. Carrying at cost forever ignores changes in fair value, and arbitrary monthly choices defeat consistency.

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