<h3 style="text-align: justify;">Mutual Fund Accounting</h3> <ul style="text-align: justify;"> <li>Knowledge of MF accounting is very important</li> <li>MFs to follow Accounting Policies laid down by SEBI (Mutual Funds) Regulations, 1996</li> <li>Separate Balance Sheets are made for each scheme of a MF</li> <li> Investments made by the fund appear on Asset side in the Balance Sheet</li> <li>Unit holders' subscriptions accounted <ul> <li> not as liabilities or deposits</li> <li> but as Unit Capital at Face Value</li> </ul> </li> <li>All assets of the scheme belong to its Investors .</li> </ul> <h3 style="text-align: justify;">NAV Calculation </h3> <ul style="text-align: justify;"> <li>Net Assets =Assets -Liabilities </li> <li>Assets = Market value of Investments + Receivables + Accrued income + Other Assets </li> <li>Liabilities =Accrued expenses - Payables - Liabilities</li> <li>NAV of a Unit = Net Assets of the Scheme / Number of units outstanding</li> </ul> <h3 style="text-align: justify;">Net Asset Value</h3> <ul style="text-align: justify;"> <li>Daily NAV disclosure is mandatory for Open-ended funds</li> <li>Date on which NAV is calculated is called Valuation Date</li> <li>NAV Calculation considers up to date transactions Close ended Funds can compute NAV's every week but disclose daily </li> </ul> <h3 style="text-align: justify;">Disclosing Net Asset Value of a Unit</h3> <ul style="text-align: justify;"> <li>All income, expenditure to be accounted upto date of valuation</li> <li>Non accrual of small amounts not affecting NAV by more than 1% permitted</li> <li>Non-recorded transactions should not affect NAV calculation by more than 2% </li> </ul> <h3 style="text-align: justify;"> Allocation / De-Allocation of Fund Units</h3> <ul style="text-align: justify;"> <li>For all valid applications received before the Cut-off time, units are allotted / cancelled based on NAV at the end of the same day</li> <li>For valid application received after the cut-off time, units are allotted / cancelled based upon NAV of the next business day</li> <li>The above rule does not apply to liquid fund schemes</li> </ul> <h3 style="text-align: justify;">Cut-off Time</h3> <ul style="text-align: justify;"> <li>The cut-off time for all Mutual Fund schemes except liquid fund schemes is 3 pm</li> <li>For liquid fund schemes valid application received upto 1 p.m. are allotted units based on NAV of the previous day</li> <li>For liquid fund schemes valid application received upto 1 p.m. are allotted units based on NAV of the same day</li> <li>NAVS are required to be rounded off upto 4 decimal places for liquid funds & upto 2 decimal places for other funds</li> <li>For repurchases under liquid funds the cut-off time is 10 a.m instead of 1 p.m. </li> </ul> <h3 style="text-align: justify;">Factors affecting Net Asset Value of a Unit</h3> <ul style="text-align: justify;"> <li> NAV is affected by 4 of factors: <ul> <li>Purchase & sale of investment securities</li> <li>Units sold or redeemed</li> <li>Valuation of all investment securities held </li> <li>Other assets and liabilities </li> </ul> </li> </ul> <h3 style="text-align: justify;">Mutual Fund charges</h3> <h4 style="text-align: justify;">There are three type of charges</h4> <h4 style="text-align: justify;"> Entry load</h4> <ul style="text-align: justify;"> <li> Charged at the time of investing in Mutual funds</li> <li>Paid as distribution expenses to agents</li> <li>Entry load is payable only in case the investment is made through an agent</li> <li>SEBI abolished any entry load to be collected by AMC's in Aug, 09</li> <li>Wef August 2011 SEBI allowed AMC's to collect Entry Load in the following manner</li> </ul> <p style="text-align: justify;"><img src="https://static.vikaspedia.in/mediastorage/filestorage/20250120165033_Screenshot2025-01-20165025.png" alt="Uploaded Image"></p> <h3 style="text-align: justify;"><br>Recurring Expenses</h3> <ul style="text-align: justify;"> <li>Also referred as Expense Ratio</li> <li>Charged by the AMC for professional portfolio management services provided to the investors</li> <li>Operating expenses are calculated on an annualized basis and normally accrued on a daily basis</li> <li>Computed NAV is shown after deducting these Recurring Expenses</li> </ul> <h3 style="text-align: justify;">Maximum Recurring Expenses</h3> <p style="text-align: justify;">SEBI has prescribed the maximum expense that may be charged by the AMC and they are based on the Average Weekly Net Assets of the AMC </p> <table style="border-collapse: collapse; width: 100%; height: 111.953px;" border="1"><colgroup><col style="width: 33.2966%;"><col style="width: 33.2966%;"><col style="width: 33.2966%;"></colgroup> <tbody> <tr style="height: 22.3906px;"> <td style="height: 22.3906px;">Average Weekly</td> <td style="height: 22.3906px;"> For Equity Funds</td> <td style="height: 22.3906px;">For Bond Funds </td> </tr> <tr style="height: 22.3906px;"> <td style="height: 22.3906px;"> For first Rs.100 crs </td> <td style="height: 22.3906px;">2.50% </td> <td style="height: 22.3906px;">2.25%</td> </tr> <tr style="height: 22.3906px;"> <td style="height: 22.3906px;"> For next Rs.300 crs </td> <td style="height: 22.3906px;">2.25%</td> <td style="height: 22.3906px;">2.00% </td> </tr> <tr style="height: 22.3906px;"> <td style="height: 22.3906px;"> For next Rs.300 crs </td> <td style="height: 22.3906px;">2.0%</td> <td style="height: 22.3906px;">1.75%</td> </tr> <tr style="height: 22.3906px;"> <td style="height: 22.3906px;"> On the Balance Average Weekly Assets</td> <td style="height: 22.3906px;"> 1.75%</td> <td style="height: 22.3906px;"> 1.50% </td> </tr> </tbody> </table> <p style="text-align: justify;">Source : <a title="Advance Accounting. Valuation and taxation" href="https://ncfe.org.in/wp-content/uploads/2023/12/Advance-Accounting.Valuation-and-taxation.pdf" target="_blank" rel="noopener">Advance-Accounting.Valuation-and-taxation.pdf</a></p> <p style="text-align: justify;"> </p>