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 the end of every month
The company values it investment at the of end every month as per the NAV they receive in the monthly investment statement. Any difference between the NAV and the value at which the investment is standing in the records, is recorded in a provision entry which is done by Partha. The provision entry done by Partha is a special function provided in the ERP system of the company in which the provision entry will be reflected only on last day of that month.
The change in NAV is rooted through Mutual Fund Fluctuation Account(ABD04) which is debited in case of positive change. This is reflected in the balance sheet under the head of Investments & NET GAIN/(LOSS) ON INVESTMENT THROUGH P/L a/c (RDL02) is credited which is reflected under the head other income P&L
b. At the end of the year
At the year end on 31st March the company makes the final valuation entry i.e. a real time entry is made by valuing the investment at the new NAV & then the difference between the value ascertained & Cost of the investment is rooted the value through Mutual Fund Fluctuation(ABD04) which is debited in case of increase in the value of investments & credited in case of loss. This is reflected in the balance sheet under the head of Investments & NET GAIN/(LOSS) ON INVESTMENT THROUGH P/L a/c (RDL02) is credited which is reflected under the head other income P&L.
Also the last year balance of Mutual Fund Fluctuation A/c is carried forward (ABD04) & the same is reflected under the head Investments.
c. Income Recognition
a.Other Mutual Funds-
b. Liquid Funds-No Dividend/interest during the life of the fund has been recognized from the Liquid Funds
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.
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.
e. Switch out
Switch out relates to an activity where new investments are being purchased from the sale proceed of an investment.
The investment is brought to value of it's NAV by debiting the mutual fund fluctuation a/c (ABD04). and crediting Net Gain(Loss) on Sale of Accounts (RDL02).
For purchase of new investments the sale proceed of an investments, a transfer entry is passed from Mutual Fund a/c to Mutual Fund a/c. If any excess fund is required to purchase the funds or any profit accrues on sale of investment it is routed through Long/Short Term Capital Gain/ loss account.