SEBI, the capital markets regulator, issued rules for asset management firms (AMCs) on Friday regarding Indian Accounting Standards compliance. This follows Sebi’s amendment to mutual fund rules, which required AMCs to submit financial reports and accounts for mutual fund schemes in compliance with Indian Accounting Standards from April 1, 2023.
According to the instructions, mutual fund schemes must compile the initial balance sheet as of the date of transition and comparatives in accordance with the standards of Indian Accounting Standard, Sebi stated in a circular.
According to mutual fund regulations, perspective historical per unit data demand the publication of scheme-specific per unit statistics for the last three years.
In this regard, Sebi stated that mutual fund schemes may be exempt from restating prior years’ published perspective historical per unit data as required by Indian Accounting Standard for the first two years following the implementation of the Indian Accounting Standard for the first time. Mutual fund schemes, on the other hand, will be required to provide extra information in the form of historical per unit statistics.
These supplementary details are linked to clearly labeling the prior Generally Accepted Accounting Principles (GAAP) information as not being planned in accordance with Indian Accounting Standard, and disclosing the nature of the modifications that would be required to bring it into compliance with the Indian Accounting Standard. These modifications do not need to be quantified in mutual fund schemes.
The financial statements of mutual fund schemes must be prepared in accordance with the forms required by the regulator. In addition, Sebi has modified its rules to accord with the Indian Accounting Standard’s need for transaction costs of investment to be expensed out (viz. to be charged to Revenue Account instead of Capitalisation).
As part of the amendment, Sebi stated that brokerage and transaction costs charged for the sake of implementation will be levied to the plans at a rate of up to 12 basis points (bps) for cash market operations and 5 bps for derivatives transactions, respectively.
Any payment for brokerage and transaction fees in excess of the aforementioned 12 basis points and 5 basis points for cash market transactions and derivatives transactions, respectively, may be charged to the plan within the scheme’s overall expense ratio limit (TER). According to the Securities and Exchange Board of India (Sebi), the new framework would take effect on April 1, 2023.
