a. Purchase
a. As an when the funds confirmation of payment to the advisory is sent that is the funds are transferred , Partha records the purchase of investments in the Tally & ERP system .
The ledger for purchase of Investments to record the purchase is IN MUTUAL Funds (ABE01)
b. Valuation
a. At both the end of every month and at the year-end on 31st March
The company assesses its investments based on the Net Asset Value (NAV) received in the monthly investment statement. Any deviation between the NAV and the recorded investment value triggers a provision entry managed by Partha. This provision entry, facilitated through the company's ERP system, is executed solely on the last day of each month. Fluctuations in NAV are handled through the Mutual Fund Fluctuation Account (ABD04). In cases of positive changes, ABD04 is debited, while for negative changes, it is credited. These adjustments are reflected in the balance sheet under "Investments" and "NET GAIN/(LOSS) ON INVESTMENT THROUGH P/L a/c (RDL02)," categorized under other income in the Profit and Loss statement. Additionally, the previous year's balance of the Mutual Fund Fluctuation Account (ABD04) is carried forward and reflected under "Investments."
b. At the time of Principal Payout
It is the part of the initial investment amount invested that is received from the fund house in part payments at their discretion
The company from time to time receives a principal payout (refund) from the fund house. The intimation for the same is received by company on their registered mail id, as when the bank account is debited following which Amit inquires with the advisory about the nature of money and then records the same in the ERP. The units held for the fund keeps does not change as an when the principal amount is distributed by the fund house.
To record the entry the Bank account is debited & Mutual Fund Fluctuation (ABD04) account is debited for the same.
c. Income Recognition
a. Interest income from these investments is directly credited to the Interest Account (RDB02) & the bank account is debited. Amit records this income in ERP system upon receiving a bank transaction notice and confirming the nature of income from the advisory via mail.
d. Profit on sale of investments
a. Profit on sale of investments are rooted from Investments Fluctuation Account to two accounts i.e. LTCG & STCG
LTCG (RDG02) & (XGP02) - The profit or loss on sale of investments that are held for more than a year are rooted through this account.
STCG (RDG03) & (XGP01)- The profit or loss on sale of investments held for less than a year are rooted through this account
b. The entry for recording of receipt of sale of investments is done by Amit in the ERP system whereas the profit or loss for the same is recorded by Partha in the ERP system & Tally both.
At the time of sale the bank account is debited & Investments account (ABE01) account & Investments & Mutual Fund Fluctuation Account(ABD04) is credited after which to book the profit the LTCG /STCG accounts is credited depending on the holding period. The amount of profit & the holding period is taken from the MIS prepared for sale of Investments as noted above.