06 July 2019
I am a member of NSE. I usually give some collaterals to my clearing member for taking exposure in FO segment. I like to give approved Liquid funds for Liquid part of collateral rather than Bank FD, as I get some tax benefits in the Liquid funds than Bank FDR. Also, at the end of every 6 months, I should submit my Networth statement to NSE. I should calculate my Networth using L C Gupta method, which is as follows
Format C-1A
Method of computation of Networth as per Schedule VI of SEBI (Stock Brokers and Sub-brokers) (Second Amendment) Regulations, 2013 / Dr. L.C. Gupta Committee Report
The method of computation of Networth as prescribed by Schedule VI of SEBI (Stock Brokers and Sub-brokers) (Second Amendment) Regulations, 2013 is as follows:
All my share holdings like Reliance, Tatasteel, shares would be categorised as “Marketable securities” and I reduce 30% of those value from my Networth. Similarly I did for my holding in liquid funds like, ICICI Liquid fund, L&T liquid and Axis Liquid fund (ISIN INF109K01Q49 , 11537287 , INF917K01JH1). But One person from NSE Called me and told that I should not categorise these liquid funds as “Marketable Securities” because they are not traded in market. Only ETF are “Marketable securities”, Instead I should reduce all the value of my investment in mutual funds as “ (d) Non Allowable Securities (unlisted Shares). “. If I do that my Networth would become lesser than the eligibility criteria to be a member. Therefore, I am forced to invest in Bank FDRs instead of Liquid funds in order to maintain my Networth.
I kindly request you to tell me whether these liquid funds (ISIN INF109K01Q49 , 11537287 , INF917K01JH1) are “Marketable Securities”? This would help myself and my TM friends to a great extent!
09 July 2024
The classification of liquid funds as "Marketable Securities" or "Non-Allowable Securities (unlisted shares)" for the purpose of calculating net worth as per SEBI regulations is a crucial aspect for NSE members. Here’s a detailed explanation to help clarify this:
### Definition of Marketable Securities:
- **Marketable Securities** typically refer to financial instruments that can be bought or sold in a public market with reasonable promptness and at a fair price. These include stocks, bonds, ETFs (Exchange-Traded Funds), and other securities that are listed on recognized stock exchanges.
### Liquid Funds Classification:
1. **Liquid Funds**: These are mutual funds that invest in short-term money market instruments such as treasury bills, commercial papers, certificates of deposit, etc. They are designed to provide liquidity and safety to investors.
2. **Mutual Funds and SEBI Regulations**: - Mutual funds, including liquid funds, are generally categorized under "Non-Allowable Securities" for net worth calculation purposes as per SEBI regulations. This is because they are not directly traded on stock exchanges like stocks or ETFs.
3. **SEBI Regulations (Schedule VI)**: - According to Schedule VI of SEBI (Stock Brokers and Sub-brokers) Regulations, 2013, for computing net worth, assets like fixed assets, pledged securities, and non-allowable securities (including mutual funds) are deducted from the total capital and free reserves.
4. **Specific Guidance for Liquid Funds**: - Liquid funds, despite being easily redeemable and having market values, are not considered "Marketable Securities" in the same sense as listed stocks or ETFs. They fall under the category of non-listed or non-allowable securities for net worth computation purposes.
### Conclusion:
Based on the information provided and standard industry practice:
- **Liquid Funds (like the ones you mentioned)** are typically classified as "Non-Allowable Securities" rather than "Marketable Securities" for the purpose of calculating net worth under SEBI regulations. - This means that you should deduct the entire value of your investments in liquid funds (mutual funds) when computing your net worth as per the L C Gupta method.
Given this understanding, it appears the advice you received from the NSE representative aligns with regulatory norms. It's crucial to adhere to these classifications to ensure compliance with SEBI regulations and to accurately reflect your financial position as required by the exchange.
For specific cases or further clarification, especially considering the critical impact on your eligibility as an NSE member, it’s advisable to consult directly with a qualified professional such as a financial advisor or a CA familiar with SEBI regulations and NSE membership requirements. They can provide tailored guidance based on the latest updates and interpretations of SEBI rules.
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