MTM or Mark to Market is a method to evaluate the fair value of assets that keeps on fluctuating, such as assets or liabilities at a given time.
It aims to provide a real-time assessment of a company or an institution’s financial situation based on market conditions.
The use of MTM method is for financial or business bookkeeping and used by average taxpayers to figure out their net worth.
How Does Debt Instrument Work?
A debt instrument is issued at a fixed coupon that varies on the market condition at the issue time and is paid regularly until maturity.
When there is a fall in interest rate, the debt securities value gains, resulting in mark-to-market gains. The opposite happens when the interest rate goes up, the value of debt security goes down, making mark-to-market loss.
What is Mark to Market Risk?
Mutual fund deals in Debt instruments have to record some gain or loss on their holding of debt, even if the loss or profit is not realized. This is called Mark-to-Market risk or MTM.
The degree of Mark-to-Market risk varies upon the type of debt security the investor has invested in.
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