Traded Debt Security
A debt security a Category III AIF holds is "traded" on a given Valuation Day if trades in marketable lots were reported in it that day on a recognised stock exchange or the CCIL.
In plain language
A Category III AIF holds many debt papers. Some trade often. Others barely trade at all.
The workbook draws a clear line between the two. A debt security is a traded debt security, on a given day, if real trades happened in it that day. Those trades must be in marketable lots. They must happen on a recognised stock exchange, or through the Clearing Corporation of India (CCIL).
Why does the label matter? It decides how the fund prices that debt paper on its books that day. A traded security gets priced off real market activity. A non-traded one does not have that option, so the fund falls back on a different method instead.
How it works
The test is set for a specific Valuation Day, not for the security forever. The same bond can be traded on one Valuation Day and non-traded on the next, depending on whether the market actually dealt in it that day.
Once a debt security clears the test, the workbook sets out how it gets priced:
- Corporate Debt Securities: the Fair Value is the closing price of the security as traded on a Recognised Stock Exchange.
- T-bills and Government Securities: valued using the Volume Weighted Average Yield (VWAY) of trades in the last 1 hour of trading.
- All other money market and debt securities — including a Government Security that did not trade in that last hour — fall back to the VWAY of all trades during the day.
- Money market instruments more broadly are valued using Mark-to-Market, based on the average of security-level prices published by agencies such as FBIL, CCIL and FIMMDA.
The workbook is explicit about why this matters: pricing a traded security by Mark-to-Market reduces the default risk baked into an "Amortized Cost" valuation, which does not react to a rating downgrade. The trade-off is that Mark-to-Market gives the Investment Manager less discretion in the process.
Contrast this with a genuinely non-traded, unlisted debt security for which there is no ascertainable market at all. Chapter 8's general valuation rules value that one at amortized cost, plus any interest accrued since purchase — exactly because there is no market trade to price it off.
A worked example
Konkan Debt Opportunities Fund, a Category III AIF, holds two corporate bonds on its Valuation Day of 30 September 2025.
Bond X, an 8.40% NCD of Vindhya Infra Ltd with face value Rs 10,00,000, is reported to have traded in marketable lots on a recognised stock exchange that same day, closing at a price of Rs 10,32,500. Because trades were reported on a recognised stock exchange on this Valuation Day, Bond X is a traded debt security, and the fund marks it to that closing price.
Bond Y, a privately placed NCD of Sahyadri Textiles Ltd with the same face value of Rs 10,00,000, sees no trades reported anywhere — not on any stock exchange, not through the CCIL — on 30 September 2025. Bond Y is therefore a non-traded debt security for that day, and the fund instead carries it at its amortized cost of Rs 10,05,000, unaffected by whether Vindhya Infra's or Sahyadri Textiles' credit rating moved that week.
The Rs 27,500 gap between Bond X's traded price and its face value shows up immediately in the fund's NAV. Bond Y's valuation will not move until it either trades or its amortised cost schedule changes.
Why NISM asks about it
Chapter 8, section 8.2.3 (Positions in Money Market Instruments and Long Term Fixed Income Securities), gives the traded-debt-security test and the VWAY-based pricing rules that follow it. Section 8.1's general valuation rules, a few pages earlier, give the contrasting amortized-cost treatment for a debt security with no ascertainable market. Expect a question that asks you to classify a bond as traded or non-traded from a one-line fact pattern — whether or not trades were reported on the Valuation Day — and then apply the matching valuation method.
Common exam traps
- The test runs day by day, not security by security forever. A bond that traded on the last Valuation Day can be non-traded on the next one if the market goes quiet in it.
- The CCIL counts as much as a stock exchange. A trade cleared through the Clearing Corporation of India also makes a debt security "traded" — do not read the rule as stock-exchange-only.
- "Marketable lots" matters. A stray, odd-lot trade is not what the workbook has in mind when it asks whether a security "traded".
- Do not confuse this with the general Debt security page, which is about what a debt instrument is and how a depository holds it. This page is specifically about how a Category III AIF prices one for NAV.
Where this is taught
Free preparation for NISM Series XIX-BRelated terms
- Category III AIFThe AIF category for funds running diverse or complex trading strategies with leverage — hedge funds and their kin — and the only category denied tax pass-through status.
- Debt securityA written agreement to repay a loan, usually with interest, within a set time. Bonds, debentures, CP, CDs, G-Secs and T-Bills are all debt securities, and any type can be admitted to the depository.
- Mark to MarketThe daily settlement of a futures position at that day's closing price, so gains and losses are paid in cash every evening instead of accumulating until expiry.
- Registered Valuer EntityThe IBBI registration a partnership or company must hold to act as a Category III AIF's independent valuer, on top of its deputed staff holding ICAI, ICSI, ICMAI or CFA credentials.
- Volume Weighted Average YieldThe average yield of a debt security's trades, weighted by traded volume. Category III AIFs value T-bills and G-Secs on the VWAY of the last hour's trades, and other debt on the whole day's trades.