Ans: The portfolio investment assets are required to be reported on marked to market basis as at the end of the reference period, with the breakups into type of securities viz., equity securities, short-term debt securities (with and original maturity of up to one year) and long-term debt securities (with an original maturity of more than a year) and country of residence of issuer.

The following steps should be followed in purchase of a security:

1. Which security to invest in – Typically this involves deciding on the maturity and coupon. Maturity is important because this determines the extent of risk an investor like an UCB is exposed to – normally higher the maturity, higher the interest rate risk or market risk. If the investment is largely to meet statutory requirements, it may be advisable to avoid taking undue market risk and buy securities with shorter maturity. Within the shorter maturity range (say 5-10 years), it would be safer to buy securities which are liquid, that is, securities which trade in relatively larger volumes in the market. The information about such securities can be obtained from the website of the CCIL (http://www.ccilindia.com/OMMWCG.aspx), which gives real-time secondary market trade data on NDS-OM. Pricing is more transparent in liquid securities, thereby reducing the chances of being misled/misinformed. The coupon rate of the security is equally important for the investor as it affects the total return from the security. In order to determine which security to buy, the investor must look at the Yield to Maturity (YTM) of a security (please refer to Box III under para 24.4 for a detailed discussion on YTM). Thus, once the maturity and yield (YTM) is decided, the UCB may select a security by looking at the price/yield information of securities traded on NDS-OM or by negotiating with bank or PD or broker.

2. Where and Whom to buy from- In terms of transparent pricing, the NDS-OM is the safest because it is a live and anonymous platform where the trades are disseminated as they are struck and where counterparties to the trades are not revealed. In case, the trades are conducted on the telephone market, it would be safe to trade directly with a bank or a PD. In case one uses a broker, care must be exercised to ensure that the broker is registered on NSE or BSE or OTC Exchange of India. Normally, the active debt market brokers may not be interested in deal sizes which are smaller than the market lot (usually ₹ 5 cr). So it is better to deal directly with bank / PD or on NDS-OM, which also has a screen for odd-lots (i.e. less than ₹ 5 cr). Wherever a broker is used, the settlement should not happen through the broker. Trades should not be directly executed with any counterparties other than a bank, PD or a financial institution, to minimize the risk of getting adverse prices.

3. How to ensure correct pricing – Since investors like UCBs have very small requirements, they may get a quote/price, which is worse than the price for standard market lots. To be sure of prices, only liquid securities may be chosen for purchase. A safer alternative for investors with small requirements is to buy under the primary auctions conducted by RBI through the non-competitive route. Since there are bond auctions almost every week, purchases can be considered to coincide with the auctions. Please see question 14 for details on ascertaining the prices of the G-Secs.