Valuation Day
The day, fixed in advance by a Category III AIF and disclosed in its offer documents, as on which its NAV is determined — at least monthly for open-ended funds and quarterly for close-ended ones.
In plain language
A fund's NAV is always "as on" some day. The Valuation Day is that day, and a Category III AIF cannot pick it after the fact. It is pre-determined by the fund and communicated to investors in its offer documents as the day by reference to which NAV is determined.
Everything that depends on NAV hangs off it: the price at which units are redeemed, the Gross NAV on which management fees are charged, the NAV compared with the hurdle for incentive fees, and the opening figure for each series of units on the next Valuation Day.
SEBI's regulations also require the calculation of NAV to be independent from the fund management function, so the day and the method are fixed rules, not a manager's choice in the moment.
How it works
How a Valuation Day can be set — the workbook lists three ways, and a fund can use more than one:
- Periodic. NAV at least once in a calendar month for an open-ended Category III AIF, or at least once in a quarter for a close-ended one, as on the last Business Day of that month or quarter. A fund investing in listed securities only usually computes NAV daily.
- For mark-to-market. NAV as at the close of business of the last securities market, on every Business Day on which the fund deals or executes trades.
- Event-driven. At intervals the Investment Manager determines for a closing, redemptions or distributions. Each such day is also a Valuation Day.
Disclosure. NAV calculated on each Valuation Day is disclosed to all investors quarterly for close-ended and monthly for open-ended AIFs.
What is valued at what, on the Valuation Day:
| Holding | Basis |
|---|---|
| Exchange-traded securities | Closing price on the exchange |
| Unlisted equity | Cost initially; thereafter fair market value by the independent valuer |
| Unlisted non-equity with an ascertainable market | Closing price on that market |
| Unlisted, no ascertainable market | Amortized cost plus accrued interest |
| Units of mutual funds and similar vehicles | Last price published by their managers |
| Foreign-currency investments | Converted to INR at the closing market rate |
| Listed futures and options | Latest available settlement prices |
Fees. Management fees are generally paid in arrears within 14 days after the relevant Valuation Day on which Gross NAV is computed.
A worked example
The workbook's Fund INC raised Rs 50 crore on 1 January 2023 by issuing 5,00,000 units at Rs 1,000.
Valuation Day 30 June 2023:
NAV = (Total assets − Total liabilities) ÷ Units
= (Rs 63,02,50,000 − Rs 5,35,50,000) ÷ 5,00,000
= Rs 57,67,00,000 ÷ 5,00,000 = Rs 1,153.40
Valuation Day 31 July 2023:
NAV = (Rs 67,23,00,000 − Rs 3,78,08,000) ÷ 5,00,000
= Rs 63,44,92,000 ÷ 5,00,000 = Rs 1,268.9840
Illustrative investor. Mr Rao holds 20,000 units and redeems. Which Valuation Day his redemption is priced on is worth real money:
Priced at 30 June: 20,000 × Rs 1,153.40 = Rs 2,30,68,000
Priced at 31 July: 20,000 × Rs 1,268.9840 = Rs 2,53,79,680
Difference = Rs 23,11,680
That is why the day is fixed in the offer documents before anyone knows which way the market will move. If the fund pays management fees on the 30 June Gross NAV, they fall due by 14 July.
Why NISM asks about it
Chapter 8 (Valuation), section 8.1 defines Valuation Day as the first concept needed to understand NAV and then prices every holding "as on the relevant Valuation Day". Chapter 6 ties the payment of management fees to it (within 14 days), and section 8.3 uses the previous Valuation Day to define Opening Series NAV. Expect direct questions on the minimum frequency for open-ended versus close-ended funds, on the disclosure frequency, and on which valuation basis applies to a given holding.
Common exam traps
- Monthly is for open-ended, quarterly for close-ended — both for the minimum calculation frequency and for disclosure. Swapping them is the standard wrong option.
- These are minimums. A fund investing only in listed securities usually values daily, and a mark-to-market Valuation Day falls on every Business Day the fund trades.
- The fund fixes the Valuation Day and discloses it in its offer documents; it is not a date SEBI sets for all funds.
- Last Business Day, not last calendar day, of the month or quarter.
- Closings, redemptions and distributions create Valuation Days too.
- Unlisted debt with no market is at amortized cost plus accrued interest, not at fair market value by the valuer — that treatment is for unlisted equity.
- The workbook's examples say "Valuation Date" and "Valuation Day" interchangeably; they mean the same thing.
Check yourself
1.Which measure reports the value of assets attributable per unit to investors in a series, reduced by the liabilities and expenses apportioned to that series, as on a Valuation Day?
- a)Fund NAV
- b)Class NAV
- c)Series NAV
- d)Series Assets
Show the answer
Answer: (c) Series NAV
This is the workbook's own sample question. Series NAV shall be equal to Series Assets, as reduced by the Series Liabilities and Series Expenses, as on a Valuation Day and divided by the number of units issued under such Series, rounded to four decimal places. Option (d) is the near-miss — Series Assets is only the first term, being total fund assets multiplied by the ratio of that series' Opening Series NAV to the total of all Opening Series NAV, before liabilities and expenses are deducted.
2.NAV calculated on each Valuation Day must be disclosed to investors:
- a)monthly for closed-ended AIFs and quarterly for open-ended AIFs
- b)quarterly for closed-ended AIFs and monthly for open-ended AIFs
- c)quarterly for both
- d)daily for both, in all cases
Show the answer
Answer: (b) quarterly for closed-ended AIFs and monthly for open-ended AIFs
NAV calculated on each Valuation Day shall be disclosed to all investors on a quarterly basis for closed-ended AIFs and on a monthly basis for open-ended AIFs. Candidates frequently reverse this, expecting the less liquid closed-ended fund to report more often. Note separately that in case a Category III AIF is investing in listed securities only, NAV is usually computed on a daily basis — but that is about computation frequency, not the disclosure rule.
3.Which statement about the calculation of NAV and the Valuation Day of a Category III AIF is correct?
- a)NAV calculation must be independent of the fund management function, and a fund investing only in listed securities usually computes NAV daily
- b)NAV is calculated by the fund management team, so that it reflects the manager's own view of value
- c)A closed-ended Category III AIF needs to calculate NAV only once a year, as on the last Business Day of the financial year
- d)The Valuation Day is chosen by the investors each quarter and communicated to the Investment Manager
Show the answer
Answer: (a) NAV calculation must be independent of the fund management function, and a fund investing only in listed securities usually computes NAV daily
SEBI requires that ‘every Category III AIF shall ensure that calculation of the Net Asset Value (NAV) is independent from its fund management function’. On frequency, ‘NAV should be calculated at least once in a calendar month, for open-ended Category III AIFs, or at least once in a quarter for closed-ended Category III AIFs, as on the last Business Day of such calendar month or quarter. In case a Category III AIF is investing in listed securities only, NAV is usually computed on a daily basis’.
- Independence from the fund management function is exactly what option (b) breaks.
- Closed-ended funds need NAV at least quarterly, not once a year.
- The Valuation Day is ‘pre-determined by a Category III AIF, and communicated to the investors in its offer documents’. Investors do not choose it.
Where this is taught
- Series XIX-B · Chapter 8: Valuationintroduced here
- Series XIX-C · Chapter 14: Valuationintroduced here
- Series XIX-E · Chapter 12: Valuationintroduced here
Related terms
- Net Asset ValueThe net assets of a mutual fund scheme divided by the number of units outstanding — what one unit of the scheme is worth on a given day, after every liability except the unitholders' own.
- 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.
- Amortized CostA debt security's purchase cost adjusted for the purchase discount or premium over its maturity — how a Category III AIF values unlisted securities with no ascertainable market, plus accrued interest.
- Class of UnitsA group of units in a Category III AIF carrying its own rights — typically its own fee terms — assigned by size and timing of commitment; NAV is computed separately for each class or series.
- Gross Net Asset ValueThe value of a Category III AIF's assets before incentive fees are deducted — and the base on which management fees are charged, which is why it is not the same as the NAV investors see.
- Independent ValuerThe valuer of a Category III AIF's unlisted holdings — not an associate of manager, sponsor or trustee, with 3 years' experience, and IBBI-registered with a professional membership or a CRA group entity.
- Series NAVThe NAV of one series of units within a class: Series Assets less Series Liabilities and Series Expenses on a Valuation Day, divided by that series' units and rounded to four decimals.
- Open-ended AIFAn AIF scheme that offers units continuously with no fixed maturity and lets investors redeem at set intervals — permitted only for Category III AIFs, with a variable corpus.
- 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.
- 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.
- SeriesA sub-division within a class of a Category III AIF's units — distinct and exclusive from any other series of the same class, created to identify a different set of investors, with its own NAV.
- Offsetting positionsNetting a Category III AIF's long and short positions in the same stock, index or commodity with the same maturity, so that its leverage is measured on net rather than gross exposure.