What is Mutual Fund Accounting and Middle Office Investment Management?

The definition of mutual fund accounting:
Accounting policies of mutual fund schemes are somewhat different from those of an industrial concern. Ninth schedule to SEBI (Mutual Fund) Regulations 1996 deal with accounting policies and standards to be adopted by a mutual fund.

The accounting policies generally cover the following areas -

1. Basis of Accounting
The fund maintain its books of account on an accrual basis.

2. Portfolio Valuation
Investment are stated at market/fair value at the balance sheet date/date of determination. In valuing the scheme's investments.

(i) Securities listed on a recognized stock exchange are valued at the last quoted price on the principal exchange on which the security is traded.

(ii) Money market instruments are valued at fair value as determined in good faith by Asset Management Company (AMC)

3. Securities Transactions
Investment securities transactions are accounted for on a trade date basis. The scheme uses the average cost method for determining the realized gain or loss on sale of investments.

4. Investment Income
Dividend and interest income are recorded on an accrual basis.

5. Deferred Revenue Expenditure
Initial issue costs comprise those costs directly associated with the issue of units of the scheme and include brokerage/incentive fees on issue of units, advertising and marketing costs, registrar fees and expenses and printing and despatch cost, which are being amortized over a period of ten financial years.

6. Dividend Equalization Reserve
The net distributable income relating to units issued/repurchased is transferred from/to Dividend Equalization Reserve for Dividend Plan for determining the net surplus/deficit transferred to /from Unit Premium Reserve.

The Scheme does not intend to declare dividends or make any other distribution in respect of units held under the Growth Plan and accordingly has not accounted for Dividend Equalization in respect of this plan during the year.

7. Unit Premium Reserve
Upon issue and redemption of units, the net premium or discount to face value of units is adjusted against the Unit Premium Reserve of the Scheme, after an appropriate portion of the issue proceeds and redemption payout is credited or debited respectively to the Dividend Equalization Reserve.

The Unit Premium Reserve is available for dividend distribution except to the extent it is presented by unrealized net appreciation in value of investments and deferred revenue expenditure.

8. Agent's Commission
Agents commission expenses are not considered as distribution charges.
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Here's middle office investment management:
The middle-office monitors and manages an institution's risk exposures. In order to manage global market and credit risk, the middle-office liaises closely with the front-office, responsible for trading operations, and also with the back-office which handles delivery, settlement and regulatory procedures.

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