What is a valuation deviation disclosure? (2026)

A valuation deviation disclosure is what an Indian asset management company must publish when it prices a security in a scheme differently from the price given by the valuation agencies. It is one of the few places where a fund house has to put a judgement call, and its effect on net asset value, on its own website in public. It also leaves a countable trail in the monthly portfolio file. This guide covers what triggers it, what it must contain, and where to look for it. It is not investment advice.

What triggers a valuation deviation disclosure?

The Master Circular's valuation chapter sets a waterfall for debt and money market securities, with prices coming from valuation agencies. Paragraph 10.2.3 then deals with what happens when an AMC does not use that price.

In case an AMC decides to deviate from the valuation price given by the valuation agencies, the detailed rationale for each instance of deviation shall be recorded by the AMC. That rationale, with details such as information about the security including ISIN, issuer name and rating, the price at which the security was valued against the price as per the valuation agencies, and the impact of the deviation on scheme NAV in amount and percentage terms, must be reported to the Board of the AMC and the Trustees.

The trigger is per instance, not per period. Each deviation is its own record.

Where does the deviation actually get published?

In two places, and the second one is easy to miss.

The rationale and details must be disclosed immediately and prominently, under a separate head, on the website of the AMC. That is the full record.

Then, while disclosing the total number of instances of deviation in the monthly portfolio statements, AMCs must also provide the exact link to their website for accessing that information. So the monthly portfolio file carries a count and a pointer, not the detail. Anyone reading only the portfolio file sees that deviations happened and how many, and has to follow the link for what they were.

The parallel rule for below investment grade securities

A second, closely worded set of provisions covers money market and debt securities rated below investment grade. Those are valued at the price provided by valuation agencies. Until the agencies compute a valuation, such securities are valued on the basis of indicative haircuts provided by those agencies, applied from the date of the credit event, meaning the migration of the security to sub investment grade, and continuing until the agencies compute a price.

Traded prices can override. If a trade happens in the interim period between the credit event and receipt of the valuation price, and the traded price is lower than the price after the standard haircut, the AMC uses the traded price. If a trade after the valuation price is computed is lower than that computed price, the traded price is used and the valuation price may be revised. Those trades must be of a minimum size determined by the valuation agencies.

An AMC may deviate from the indicative haircuts or from the valuation agency price for these securities, subject to the same three steps: record the rationale, report it to the Board of the AMC and the Trustees with the security details and the NAV impact, and disclose it immediately under a separate head on the website, with the total number of instances disclosed in the monthly portfolio statements for the relevant period along with an exact link.

Accrued interest follows the principal. The indicative haircut applied to the principal is applied to any accrued interest. For securities classified as below investment grade but not in default, interest accrual may continue with the same haircut. For securities classified as default, no further interest accrual is made.

Why this matters when reading a scheme portfolio

Every percentage to NAV in a portfolio statement is a ratio whose numerator is a valuation. For listed equity that valuation is usually a market price. For stressed debt it may be an agency price, an indicative haircut, a traded price, or an AMC's own number that departs from all three and has to be explained in public.

The deviation count in the monthly file is the signal that some of the second kind is present. Read alongside the asterisk conventions covered in how to read a mutual fund portfolio statement and the illiquid securities rules in what are illiquid securities in a mutual fund, it tells you which parts of a portfolio are priced by observation and which are priced by judgement.

For the file the count appears in, see what is a monthly portfolio disclosure. Flock reports what schemes disclosed and when. Interpreting a valuation is not something a data file can do for you.