8.6 Key Accounting and Reporting Requirements
Key Takeaways
- Each scheme maintains its own books of account, separate from the AMC and from other schemes.
- NAV must be computed and published every business day, and portfolios disclosed monthly.
- Half-yearly unaudited results and an audited annual report are required for every scheme.
- The scheme auditor is appointed by the trustees and must differ from the AMC's auditor.
- Investors receive account statements and a consolidated account statement across all funds linked to their PAN.
Separate Books for Every Scheme
The foundational accounting rule is segregation. Each scheme maintains its own books of account, distinct from the AMC's books and from those of every other scheme of the same fund house.
The consequences follow directly from the trust structure:
- Income earned by a scheme belongs to that scheme's unitholders
- Expenses of a scheme are charged to that scheme and to no other
- One scheme's losses can never be met from another scheme's assets
- The AMC's own profit or loss is entirely separate from scheme accounts
A fund house cannot subsidise a poorly performing scheme from a successful one, and cannot move expenses between schemes.
Accrual Accounting
Scheme accounts are maintained on an accrual basis:
- Income — interest and dividends are recognised as they accrue or are declared, not when received
- Expenses — recurring expenses accrue daily
- Unrealised appreciation or depreciation — recognised through valuation, but not distributable
- Realised gains — recognised on sale and available for distribution
The distinction between realised and unrealised is central, and links directly to the distribution rules in section 8.3.
Daily Requirements
| Requirement | Rule |
|---|---|
| NAV computation | Every business day |
| NAV publication | AMC website and AMFI website by the prescribed deadline |
| Decimal places | Four for liquid and debt schemes; at least two for equity and hybrid |
| Expense accrual | Daily |
Periodic Disclosure
Monthly
- Complete portfolio of every scheme, disclosed on the AMC website in the prescribed format
- Risk-o-meter, evaluated and disclosed, with changes communicated to unitholders
Half-yearly
- Unaudited financial results for each scheme, published in the prescribed format
- Consolidated Account Statement to investors, carrying the commission and expense-ratio disclosures discussed in section 7.6
Annually
- Audited annual report for each scheme, including the balance sheet, revenue account, notes, and the auditor's report
- Abridged summary provided to unitholders, with the full report available on request and on the website
- Voting disclosure covering how the AMC voted on investee company resolutions, with rationale
- Disclosure of the number of risk-o-meter changes during the year
The Audit
Two audits, appointed by different parties:
| Audit | Appointed by | Covers |
|---|---|---|
| Scheme audit | Trustees | The accounts of each scheme |
| AMC audit | The AMC in general meeting | The AMC's own accounts as a company |
The scheme auditor must be different from the AMC's auditor. Trustee appointment is the mechanism that makes the scheme audit genuinely independent of the entity whose management it examines.
Statements to Investors
| Statement | When | Content |
|---|---|---|
| Allotment confirmation | On allotment | Units allotted, NAV applied, amount invested |
| Account statement | On transaction | Folio-level transaction detail |
| Consolidated Account Statement, monthly | To investors who transacted that month | All transactions across mutual funds linked to the PAN |
| Consolidated Account Statement, half-yearly | Half-yearly | All folios, plus commission paid and expense ratios of both plans |
A CAS consolidates across all mutual funds against the investor's PAN, rather than being limited to one fund house. Where units are held in dematerialised form the CAS is issued by the depository and covers other securities as well. Investors who have not provided a PAN receive folio-level statements from each AMC instead.
Why This Matters to a Distributor
The reporting architecture is the source of the answers to most investor questions. Where did the money go? The monthly portfolio. What did it cost? The expense ratio in the CAS. How much did you earn from me? The half-yearly CAS in rupees. Did the fund house vote on that governance controversy? The annual voting disclosure.
A distributor who can point to the document that answers a question — rather than offering an opinion — is providing exactly the service the framework was designed to enable.
Unit Capital, Reserves and the Balance Sheet
A scheme's balance sheet has a structure worth recognising, because questions occasionally test the components.
| Item | What it represents |
|---|---|
| Unit capital | Face value of units outstanding |
| Unit premium reserve | Amount received above face value on issue of units |
| Reserves and surplus | Retained realised gains and accumulated income |
| Unrealised appreciation reserve | Mark-to-market gains not yet realised |
| Current liabilities and provisions | Amounts payable, accrued expenses |
Two points follow directly from the distribution rules in section 8.3. The unit premium reserve is subscription money, not income, and cannot be distributed. Unrealised appreciation is not distributable either, because the gain has not been crystallised. Only realised gains and distributable surplus may be paid out.
Recognition of Income and Expenses
- Dividend income is recognised on the ex-dividend date rather than on receipt.
- Interest accrues on a daily, time-proportionate basis.
- Purchases and sales of securities are recognised on trade date rather than settlement date.
- Expenses accrue daily, so a scheme's NAV always reflects costs to date.
- Brokerage and transaction costs on purchases form part of the cost of acquisition; those on sales reduce the sale proceeds.
What the Annual Report Contains
Beyond the financial statements, the scheme annual report carries material a diligent reader will find nowhere else:
- Portfolio turnover for the year
- Total expense ratio actually charged, against the applicable cap
- Commission paid to distributors, in aggregate
- Details of transactions with associates of the sponsor and AMC
- Investor complaints received, resolved and pending, by category
- Unclaimed redemption and distribution amounts
- Statement of large unitholdings, where any investor holds above the prescribed proportion
The complaints table repays attention. A scheme showing a rising count of complaints of the same type is describing a process problem, and that is information no performance figure conveys.
A fund house wishes to meet an unexpected expense in one scheme from the assets of another scheme that has performed well. Is this permitted?
Which disclosure is required monthly?
An investor holds units of six schemes across four different fund houses, all under the same PAN. What does the half-yearly Consolidated Account Statement cover?