The Securities and Exchange Board of India (SEBI) has changed rules relating to the valuation of debt and money market instruments. The move is to make sure that the current market scenario is reflected in the portfolios of fund houses.

SEBI issued a circular on Tuesday which said that all securities in debt and money markets including those which offer a floating rate, with residual maturity of up to 91 days or over 91 days, would have to be valued at the weighted average price at which they are traded on the particular valuation day.

In case a security with residual maturity of up to 91 days is not traded on valuation day then the value will be determined on amortisation basis.

Similarly the securities with residual maturity of over 91 days will be valued on benchmark yield or on a matrix of spread over risk free benchmark yield which can be obtained only from an agency appointed by the Association of Mutual Funds of India for the purpose.

The regulator has also asked the Mutual funds to provide details relating to transactions such as inter scheme transfers of money market and debt securities on a daily basis.

In another development, the Chairman of SEBI Mr. C B Bhave has criticised market intermediaries that indulge in innovative products to conceal high leverage. Mr. Bhave said, "Because leverage is risky and because regulators tend to control leverage, market intermediaries are continuously trying to devise ways to increase leverage."

The RBI has also expressed concerns over products like synthetic securitisation and credit derivatives and said that they will only be allowed after carefully studying its experience abroad and risk management capabilities of the Indian system.

Experts outlined that such products precipitated a worldwide debt crisis and economic slowdown while putting in risk many of the world's largest financial institutions in the US. Some companies in India that indulged in such instruments suffered huge looses after the collapse of the Lehman Brothers. These products are mainly aimed at high net worth individuals and are becoming increasing popular.