Mutual Funds Accounting ( Simplified )

Mutual fund accounting is  that an accountancy practice which is helpful for making correct financial reporting for mutual funds. In this accounting practice, there are two main parties who maintain the accounts of mutual funds.

(A) One is investor who invests his money in different mutual funds for reducing his risk from direct investment in share market. So, for seeing the return and total investment, he needs to record all his mutual fund investment transactions.

 (B) Second party is asset management company or Trustees of Mutual Funds. This company gets money from investors under different capital units schemes. So, this is liability for this company. For showing exact position of this liability and for showing return on this money, it has to maintain its accounts. So, we try to simplify mutual funds accounting from Asset management company or trustee Point of View.

1. Record the All Transactions relating to Mutual Funds

(A) Recording of Issue of Units of Mutual Fund :  When person buys the units of mutual funds, it will be the duty of Mutual fund company to record it in its books. For example, any person buys 10 units of Reliance Capital Asset Management Co. Ltd. It will become the capital of this mutual fund. So, it should be record like the recording of capital. Bank account will be debit and unit capital will be credit in this transaction. Every person who will get unit will be  Mutual Fund unit holder like any shareholder.

(B)  Recording of Investments of Mutual Fund Money : If Mutual fund company invests his money in shares or, its record will be done like purchasing of any other asset. But we have to mention that specific shares. Suppose, Reliance capital Asset Management Co. Ltd has invested money in  equity share capital. At that time, Investment in equity share capital account will be debit and bank account will be credit.

(C) Recording of Fixed Assets, Current Assets and Other Assets: In this world, every businessman or service provider need office. Mutual fund company is just service provider. It has expert who are interested to increase the capital of unit holder. So, they need different fixed assets. When they buy, it is the duty of its accountant to record all the transactions relating to fixed assets, current assets and other assets.

(D) Recording of Incomes : Mutual fund company gets earning from dividend, interest, derivative transactions and other sources. All incomes should be recorded like recording of incomes of any other normal businesses.

(E) Recording of Expenses : Main expenses of mutual fund company are the management fees. Company pays  the big salary to experts. Company also pays money for advertising and marketing. We have to record it.

(F) Recording of Other Transactions : Except above, all the transactions relating to mutual funds will be recorded on the basis of accounting rules.

2. Calculation of NAV 

NAV means net asset valuation. At any time or daily basis, NAV is calculated. It is very helpful to calculate the market value of each mutual fund unit. Both mutual fund company and its investors are interested to know NAV. We can calculate NAV with following simple formula.

NAV or Market Value of a Mutual Fund Unit

 = Total Investment at Market rate - Total Outside Liabilities /  Total No. of Units

For Example

3. Financial Reporting for Mutual Funds

SEBI has made regulation 54 under SEBI (Mutual Fund) Regulation 1996. This has given some guidelines for financial reporting for mutual funds. Following are main reports and financial statements of mutual fund company

(a) Report of the board of trustees on the operations

(b) Balance Sheet and Revenue Account

Following is its example :

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Accounting Education: Mutual Funds Accounting ( Simplified )
Mutual Funds Accounting ( Simplified )
Accounting Education
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