As a concept, the CRISIL Bond Valuation service was launched first in 1998 when the debt markets were at a nascent stage with corporate bonds being rarely traded. With only 3-4 corporate bonds being traded in the NSEWDM on a daily basis, the difference in trading volume of corporate bonds and gilts was glaring. The portfolio of most funds had very few securities that were frequently traded, due to which a need arose to value the non-traded illiquid securities, in order to have a uniform pricing standard across the industry.

To cater to this need for uniform valuations CRISIL launched the CRISIL Bond Valuation Matrix (CRISIL BVM), which has since been mandated by SEBI/AMFI as a uniform pricing standard for the mutual fund industry. As of date nearly Rs. 80,000 crore (US $ 18 billion) of fund portfolio holdings are marked-to-market everyday, based on the CRISIL Bond Valuation Matrix.

The CRISIL BVM identifies the various risk factors like credit risk, interest risk and liquidity risk and using gilt yields as a benchmark, corporate bonds are priced. This is done by applying a spread or yield premium over Gilt across different duration buckets & for different categories of credit risk categories (such as AAA, AA+, etc). Duration is used here as opposed to tenor, since duration as a concept defines interest rate risk appropriately as compared to tenor. The launch of the CRISIL BVM has not only set a uniform pricing standard but has also led to a considerable deepening of the corporate bond market and helped develop the broader concept of identifying and
pricing “risk” inherent in securities of a portfolio.

The need for a valuation Matrix
Advantages of CRISIL Bond Valuation Matrix
Frequency of CRISIL BVM

Mutual funds have been investing both in debt as well as equities on behalf of the people placing their monies with them. On the equity front there are two exchanges namely BSE and the NSE where the securities are traded and the closing prices of the same can be obtained from the exchange in order to mark-to-market the portfolio holdings of mutual funds. This is far in contrast to the debt markets where the markets are illiquid and the trade data of the different bonds are rarely available. More pressing was the need to value corporate bonds that seldom get traded. CRISIL, hence came up with a concept of valuing the lesser-traded corporate bonds, the illiquids as they would be called, in order to arrive at a uniform base for the valuation by mutual funds across the country.

To start with CRISIL launched the CRISIL BVM in December 1998 with a weekly frequency - started with a weekly matrix disseminating them every Wednesday. Increase in trading volumes and volatility then warranted a tri-weekly generation of the CRISIL BVM on Monday, Wednesday and Friday. The high levels of liquidity and softer interest rates prevalent in the system witnessed a further spate of funds into Income funds and since 1 July 2003 the Bond Valuation Matrix is being produced and disseminated on a daily basis.