Overview

Principal Protected Market Linked Debentures (PPMLD) are instruments issued with coupons associated with the performance of certain underlying asset, generally an equity index. The Principal portion of the instrument is protected for downside and even in case of any negative return on the underlying equity index, the coupon is not negative. The structure benefits from the positives of debt instrument in form of protection of the principal amount and benefits from positives of equity instrument in form of participation in positive returns. Generally, the instrument do not have periodic payments towards coupons and the coupons are payable only at the maturity of the instrument.

 

CARE Risk Solution's Valuation of PPMLD structures are opinions on the valuation of a given instrument based on CARE Risk Solution's analysis of the structure and the impact of underlying market variables affecting the structure on the given valuation date. The valuation considers various market scenarios using some of the most advanced simulation software and high quality data on the underlying variables. An independent Valuation opinion provided by CARE Risk Solutions helps the investors in taking the right investment decision in the complex PPMLD market. CARE Risk Solution's PPMLD Valuation services may also availed by Issuers for getting an independent third party evaluation of their portfolio.

Need for Valuations

In view of the fact that PPMLDs are different in their nature and their risk return relationship, SEBI has mandated compulsory valuation of the structures by AMFI appointed valuation agencies like CARE Risk Solutions.

Investors are informed with an unbiased independent valuation of the hybrid structure.

Investors, at times, lack the expertise and knowledge to evaluate such hybrid structures, which an  agency like CARE Risk Solutions possesses.

 

Methodology

We use Local Volatility Method for valuation of structured products using the analytic and simulation capabilities of Numerix Portfolio software.

The valuation methodology adopts a simulation based approach that is accepted across market participants as the appropriate method for valuation of exotic options.

Inputs for the valuation are based on our analysis of information from various data service provider including Super Derivatives, FIMMDA and Issuers.

Why CARE Risk Solutions

Regulatory Recognition – CARE Risk Solutions is   “AMFI recognised Valuation Agency” for the purposes of providing valuation services for MLDs.

Independent Opinion - CARE Risk Solution (Wholly owned subsidiary of CARE Ratings ltd) has over 15 years global experience in providing cutting edge Risk & Compliance solutions to Banks and Financial Institutions.

Team Capability - Analyst team of CARE Risk Solutions includes qualified and multifaceted professionals from diverse backgrounds such as chartered financial analysts, chartered accountants, engineers, economists and financial risk managers.

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