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