Reliance Mutual Fund. Valuation Policy-Gold

Transcription

1 Reliance Mutual Fund Valuation Policy-Gold December 2015

2 History Sheet Date Particulars Approved By Signature Mar 2007 Incorporation of Policy Version 1.0 Nov 2007 Incorporation of Policy Version 2.0 Dec 2008 Incorporation of Policy Version 3.0 Jun 2010 Incorporation of Policy Version 4.0 Dec 2011 Incorporation of Policy Version 5.0 November Incorporation of Policy Version November Incorporation of Policy Version July 2014 Incorporation of Policy Version 7.0 December Incorporation of Policy Version

3 Section Existing Policy Updated Policy Reason for Update 4 Overview (3) In case R*Share Gold Exchange Traded Fund invests in Gold Deposit Scheme (GDS) of banks, having gold held by the Fund as underlying, the valuation of such gold would follow the same principles as provided for valuation of physical gold in this policy. (3) In case R*Share Gold Exchange Traded Fund invests in Gold Deposit Scheme (GDS) of banks, having gold held by the Fund as underlying, the valuation of such gold would follow the same principles as provided for valuation of physical gold in this policy. Interest received on such Gold Deposit Scheme shall be accrued in proportionate manner till the maturity of the deposit. To provide clarity on the accrual of the interest received on Gold Deposit Scheme 3

4 TABLE OF CONTENTS 1 Objective Structure Definition Overview Valuation Guidelines Valuation methodology of Gold stored at different locations Valuation methodology of Gold Exchange Traded Funds units Appendix Appendix Appendix

5 1 Objective o o o o To adhere to SEBI guidelines and regulations on valuing gold. To incorporate the best market practices followed in the industry on valuations. To elaborate the process of valuing gold to all stakeholders involved in gold valuation. To ensure that appropriate approval matrix is formulated for valuation process flow. 2 Structure The manual consists of following sections including this one Section 1 Section 2 Section 3 Outlines the objective, structure, definition, overview with an eg for valuation of gold Gold valuation guidelines. Provide appendices for user reference. 3 Definition Gold Gold means physical gold bars that confirm to gold acceptance criteria as mentioned in section 3.3 of Gold Investment policy having a purity of 99.5%(995 finess per 1000) or higher. Such bars are imported by RBI Authorised Banks and Agencies and stored in Vaults of Vaulting Agents in Various Locations in the country. Each gold bar would be assigned a unique number to maintain and keeps records on a bar to bar level. 4 Overview Value of gold ascertained as per circular no. SEBI/IMD/CIR No.14 /84243/07 dated Jan 15, 2007 (1) The gold held by a gold exchange traded fund scheme shall be valued at the AM fixing price of London Bullion Market Association (LBMA) in US dollars per troy ounce for gold having a fineness of parts per thousand, subject to the following: (a) (b) adjustment for conversion to metric measures as per standard conversion rates; adjustment for conversion of US dollars into Indian rupees as per the RBI reference rate declared by the Foreign Exchange Dealers Association of India (FEDAI); and (c) addition of (i) transportation, insurance and other charges that may be normally incurred in bringing such gold from London to the place where it is actually stored on behalf of the mutual fund; and 5

6 (ii) notional customs duty and other applicable taxes and levies that may be normally incurred to bring the gold from London to the place where it is actually stored on behalf of the mutual fund: Provided that the adjustment under clause (c) above may be made on the basis of a notional premium that is usually charged for delivery of gold to the place where it is stored on behalf of the mutual fund: Provided further that where the gold held by a gold exchange traded fund scheme has a greater fineness, the relevant LBMA prices of AM fixing shall be taken as the reference price under this sub-paragraph. (2) If the gold acquired by the gold exchange traded fund scheme is not in the form of standard bars, it shall be assayed and converted into standard bars which comply with the good delivery norms of the LBMA and/or Gold acceptance criteria set up in section 3.3 of Gold Investment Policy and thereafter valued in terms of sub-paragraph (1) (3) In case R*Share Gold Exchange Traded Fund invests in Gold Deposit Scheme (GDS) of banks, having gold held by the Fund as underlying, the valuation of such gold would follow the same principles as provided for valuation of physical gold in this policy. Interest received on such Gold Deposit Scheme shall be accrued in proportionate manner till the maturity of the deposit. 6

7 Example of Valuation (Mumbai Location) Spot Gold Price Calculation Spot Gold (LBMA Fixing) USD/Oz Premium 1 $/Oz Fixing 0.25 $/Oz Spot pirce in India $/Oz $/KG, 995 purity 34, RBI reference INR/USD Rate rate Price in INR Rs./Kg. 2,277, Customs 236, Price with customs 2,514, Stamp Duty 2, Price with Stamp Duty 2,516, Octroi 2, Sub Total 2,519, Calculated as per Customs calculation presented below 0.1% of price with Customs 0.1% of price with Octroi and Customs Vat 1% 30, % of Sub total Total Value (INR/Kg.) 2,549, Example for Customs Value Calculation Tariff value per 10 Gms 344 Amount in USD Tariff value Per Kg 34, Amount in USD Reference rate as per CBEC Notification ,294, Announced by Central Board of Excise and Customs periodically Landing cost 0 N.A wef Total 2,294, Custom duty 236, Custom Rates changes as per notification issued by Govt of India/ CBEC periodically Rounded off Per Kg 236, Rounded off 7

8 a. LBMA Gold Fixing: - Designed to fix a price for settling contracts between the fixing members of the LBMA (London Bullion Market Association), the Gold Fixing provides a recognised benchmark for pricing the majority of spot gold products throughout the world's markets. The Gold Fixing is conducted twice at London, at 10:30 GMT and 15:00 GMT. As per SEBI Guidelines Gold would be valued at AM fixing price. b. Premium would be fixed on a monthly basis for valuation purpose. The premium for valuation purpose would be fixed on 1 st working day of every month. The premium can be changed during a month on any day other than the 1 st working day with approval of the Head Commodities/Fund Manager. In order to bring in parity between domestic prices and the international prices of gold during the month and given the limitation with respect to obtaining market quotes, it has been decided to take into consideration NCDEX spot prices and work back to an import parity price using the LBMA price, customs duty and an RBI Reference rate, where the gold premium would be the balancing figure. The above approach would be used during the month as well in order to ensure that gold valuations track market prices accurately. Changes to the premium will be communicated by the Risk Management team periodically. Until a change in premium is computed, the existing premium will be continued. c. Fixing charges is the commission charged by the bullion bank to fix gold prices. The fixing charges for valuation purpose would be as per the LBMA guidelines. d. LBMA Fixing prices are quoted for USD/Oz for 999 fineness. For conversion of Troy Ounces to Kilogram we use the NYMEX conversion factor of Troy ounces per kilogram. The fineness quotient is adjusted by using the factor e. To convert it into Rs./Kg, it has to be multiplied by INR reference rate from RBI f. Custom duty is calculated as per Tariff value and the Exchange Rate prescribed by the appropriate authorities irrespective of the price of Gold as per LBMA and the RBI Reference Rate for USD. The method and rates used for calculation as stated in the example may be changed as per amendments prescribed by the appropriate authorities.. g. Stamp Duty is on ad valorem basis on the price including customs. As of now it is 0.1% of price, it will change as when the appropriate authority changes the rate of duty. Stamp duty calculation for different locations where gold is stored would be as per the method and rates specified by the respective authorities. h. Octroi is also on ad valorem basis on the price including customs and stamp duty. As of now it is 0.1% of price, it will change as when the appropriate authority changes the rate of duty and shall be as per rate prevailing at the different locations where the gold is stored. i. VAT is on ad Valorem basis on the prices with Customs, Stamp Duty and Octroi, As of now it is 1% of price, it will change as and when the appropriate authority changes the rate and shall be as per rate prevailing at the different locations where the gold is stored. 8

9 5 Valuation Guidelines For Valuation purpose Stamp duty, Octroi and VAT would be as applicable to the location of physical gold. This policy would be reviewed and revised by the valuation committee on an as need basis. Further, it is mandatory to necessarily review the valuation policy on an annual basis. It would be responsibility of the compliance team to update keep the investment team as well valuation committee of any new regulatory guidelines pertaining to valuations. On an annual basis, the policy would be approved by one or more directors. The fixing charges as per LBMA guidelines for valuation would be fixed on the 1 st working day of every month and if need be changed during the month with the approval of the Head-Commodities/Fund Manager. Any exceptions to the valuation policy have to be approved by the valuation committee. Approved copy of the valuation policy would be provided to the fund accountants, who would then be responsible for carrying the valuations as per the policy. Further, Fund Accountants would be required to certify on an monthly basis that all valuations have been carried out as per the policy. If required, Service Level Agreement would be suitably modified. 6 Valuation methodology of Gold stored at different locations. SEBI guidelines require that addition of transportation & other charges that may be normally incurred at the actual place of storage be considered while calculating the value of gold. Accordingly, the valuation of gold would be arrived at location wise. While arriving at the location wise value of gold, due care for the costs normally incurred for delivery upto that specific location would be considered. The location wise gold value accordingly, could differ due to octroi, other charges which may be dependent on each location. 7 Valuation methodology of Gold Exchange Traded Funds units. Units listed and traded would be valued at the closing traded price as on the valuation date. Unlisted units and listed-but-not-traded units would be valued at the NAV as on the valuation date. 9

10 VALUATION POLICY - GOLD Appendix 1 Chief General Manager Investment Management Department SEBI/IMD/CIR No. 2/65348/06 April 21, 2006 All Mutual Funds Registered with SEBI Association of Mutual Funds in India (AMFI) Dear Sirs, Re: Introduction of Gold Exchange Traded Funds in India. As you are aware, SEBI vide circular dated January 24, 2006, issued gazette notification no. S.O. 38(E) dated January 12, 2006 pertaining to SEBI (Mutual Funds) (Amendment) Regulations, 2006 on the captioned matter. Subsequently, SEBI had received some queries from mutual funds and custodians on certain operational aspects of GETF. The same has been examined and following guidelines are being issued: 1. Valuation Since physical gold and other permitted instruments linked to gold are denominated in troy ounces or grams, it will be valued based on the market price of gold in the domestic market and will be marked to market on a daily basis. The market price of gold in the domestic market on any business day would be arrived at as under: Domestic price of gold = (London Bullion Market Association AM fixing in US$/ounce X conversion factor for converting ounce into kg for fineness X rate for US$ into INR) + custom duty for import of gold + sales tax/octroi and other levies applicable. The Trustees reserve the right to change the source (centre) for determining the exchange rate. The AMC shall record in writing the reason for change in the source for determining the exchange rate. 10

11 2. Determination of Net Asset Value NAV of units under the Scheme shall be calculated as shown below: Market or Fair Value of Scheme's investments + Current Assets Minus Current Liabilities and Provision NAV (Rs.) = No of Units outstanding under Scheme on the Valuation Date The NAV shall be calculated up to four decimals. 3. Recurring Expenses For a GETF, the limits applicable to equity schemes as specified in regulation 52(6) shall be applicable. 4. Benchmark for GETF: As there are no indices catering to the gold sector/securities linked to Gold, currently GETF shall be benchmarked against the price of Gold. Please note that the necessary amendments to SEBI (Mutual Funds) Regulations, 1996 in this regard shall follow. This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with the provisions of regulation 77 of SEBI (Mutual Funds) Regulations, 1996, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market. Yours faithfully (D. Chanda) 11

12 Appendix 2 EXECUTIVE DIRECTOR INVESTMENT MANAGEMENT DEPARTMENT SEBI/IMD/CIR No.14 /84243/07 January 15, 2007 All Mutual Funds Registered with SEBI Association of Mutual Funds in India (AMFI) Dear Sirs, We are enclosing a copy of the following gazette notifications for your information and implementation: 1. F. No. SEBI/LAD/DOP/82534/2006 dated December 20, 2006 pertaining to SEBI (Mutual Funds) (Fourth Amendment) Regulations Consequently, this supercedes the methodology for valuation of gold prescribed vide SEBI circular SEBI/IMD/CIR No. 2/65348/06 dated April 21, F. No. SEBI/LAD/DOP/ / 2006 dated December 21, 2006 pertaining to SEBI (Mutual Funds) (Fifth Amendment) Regulations Considering the said amendment, the format for submitting the bio-data of directors of AMCs and trustees to SEBI, as prescribed vide SEBI circular no. MFD/CIR/11/354/2001 dated December 20, 2001 and amended vide SEBI circular no. MFD/CIR/13/16799/2002 is being revised. The clause 2 and 3 in the format specified for the use of trustees, are revised as under. 2. In case of Chairman/director including independent director of AMC, he is not a trustee of any mutual fund (Reg. 16(3) and Reg.21(1)(e)). 3. In case of a trustee, he is not on board of any other AMC or trustee company of any mutual fund. (Reg.16(4)). This circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 read with the provisions of Regulation 77 of SEBI (Mutual Funds) Regulations, Yours faithfully, R. K. Nair Encl: As above 12

13 Appendix 3 THE GAZETTE OF INDIA EXTRAORDINARY PART III SECTION 4 PUBLISHED BY AUTHORITY NEW DELHI, WEDNESDAY, DECEMBER 27, 2006 SECURITIES AND EXCHANGE BOARD OF INDIA NOTIFICATION Mumbai, the 20 th December, 2006 SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL FUNDS) (FOURTH AMENDMENT) REGULATIONS, 2006 F. No. SEBI/LAD/DOP/82534/2006 In exercise of the powers conferred by section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following Regulations to further amend the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, namely :- 1. These Regulations may be called the Securities and Exchange Board of India (Mutual Funds) (Fourth Amendment) Regulations, They shall come into force on the date of their publication in the Official Gazette. 3. In the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, in Eighth Schedule, after paragraph 3, the following paragraph shall be inserted, namely:- 3A. Value of gold: (1) The gold held by a gold exchange traded fund scheme shall be valued at the AM fixing price of London Bullion Market Association (LBMA) in US dollars per troy ounce for gold having a fineness of parts per thousand, subject to the following: (a) adjustment for conversion to metric measures as per standard conversion rates; (b) adjustment for conversion of US dollars into Indian rupees as per the RBI reference rate declared by the Foreign Exchange Dealers Association of India (FEDAI); and (c) addition of (i) transportation and other charges that may be normally incurred in bringing such gold from London to the place where it is actually stored on behalf of the mutual fund; and 13

14 (ii) notional customs duty and other applicable taxes and levies that may be normally incurred to bring the gold from London to the place where it is actually stored on behalf of the mutual fund: Provided that the adjustment under clause (c) above may be made on the basis of a notional premium that is usually charged for delivery of gold to the place where it is stored on behalf of the mutual fund: Provided further that where the gold held by a gold exchange traded fund scheme has a greater fineness, the relevant LBMA prices of AM fixing shall be taken as the reference price under this sub-paragraph. (2) If the gold acquired by the gold exchange traded fund scheme is not in the form of standard bars, it shall be assayed and converted into standard bars which comply with the good delivery norms of the LBMA and thereafter valued in terms of sub-paragraph (1). [ADVT. III/IV/69ZB/2006/Exty.] M. DAMODARAN CHAIRMAN SECURITIES AND EXCHANGE BOARD OF INDIA 14