written by | February 22, 2022

How To Manage Mutual Fund Accounting In Tally Erp 9

A mutual fund is a type of financial vehicle that pools money from several investors to invest in securities such as stocks, bonds, money market instruments, and other assets. Professional money managers manage mutual funds, allocating assets and attempting to generate capital gains or income for the fund's investors. Mutual funds invest in a wide range of assets, and their performance is often assessed by the change in the fund's overall market capitalization, which is determined by adding the results of the underlying investments. The portfolio of a mutual fund is built and managed to meet the investment objectives indicated in the prospectus. 

 Did you know?

Tally is an investment management software. It does not manage mutual fund units by default.

Classification of Mutual Funds

Mutual funds are classified into a variety of categories based on the securities they have chosen for their portfolios and the type of returns they seek. Different types of mutual funds on the different basis are as follows: 

Based on Asset Class

  • Equity Funds
  • Debt Funds
  • Money Market Funds
  • Hybrid Funds

Based on Investment Goals

  • Growth Funds
  • Income Funds
  • Liquid Funds
  • Tax Saving Funds
  • Aggressive Growth Funds
  • Capital Protection Funds
  • Pension Funds

Also read: How to do Payroll Management in Tally ERP 9

Based on Structure

  • Open-Ended Funds
  • Closed-Ended Funds
  • Interval Funds

Based on Risk

  • Very low-risk Funds
  • Low-risk Funds
  • Medium-risk Funds
  • High-risk Funds

Specialized Mutual Funds

  • Sector Funds
  • Index Funds
  • Fund of Funds
  • Emerging Market Funds
  • International Funds
  • Global Funds
  • Asset Allocation Funds etc.

How do you earn from investments in Mutual Funds?

A mutual fund is both an investment and an actual company. Investors typically earn a return from a mutual fund in three ways:

  1. Income is earned from dividends on stocks and interest on bonds held in the fund's portfolio.
  2. If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution.
  3. If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in distribution then they can be sold in the market for profit.

Mutual Fund Accounting Entry in Tally ERP 9

The first and the foremost thing is to create the ledger of Mutual Fund we have purchased under the Investment profile:

Steps to Open Mutual Fund Account in Tally ERP 9 are as follows:-

  1. On the Gateway of Tally click on Account info

  1. After that select Ledgers
  2. After Selecting Ledgers click on Create Single Ledger
  3. Mention the name of Mutual Fund Account you want to create under the Head Investments and save the Ledger Account

Similarly, a Broker Account can be created under the Head Sundry Creditors. 

Accounting entries to be passed are as follows:

a) On purchase of Mutual Fund

  • On Gateway of Tally, click on Accounting Vouchers
  • Press F7 to select Journal as the mode of entry
  • Press F2 to enter voucher date
  • After that under Particulars, pass the following entry:

By Mutual Fund Account      *****

       To Broker Account            *****

b) On redemption/sale of mutual fund

  • On Gateway of Tally, click on Accounting Vouchers
  • Press F6 to select Receipt as the mode of entry
  • Press F2 to enter the voucher date
  • After that select the Bank Account in which money has been received
  • Under Particulars, select the Mutual Fund Ledger and enter the amount of Gain or Loss
  • Accounting entry to be passed is as under

By Bank Account       ***

To Mutual Fund Account               ***

To Gain on Sale of Mutual Fund   ***

Also read: How to use GST in Tally ERP 9?

Now let us understand a Mutual Fund SIP Accounting,

First of all, we need to know what is SIP? SIP (Systematic Investment Plan) as the name suggests is a type of investment with monthly/quarterly/yearly contribution which allows the investors to invest small amounts periodically rather than in lump sum. 

Example:- You contribute Rs 10,000 per month for 3 months in a mutual fund SIP. 

  • On 1.1.2022 you buy 10 units for NAV of Rs 1000/- 
  • On 1.2.2022 you buy 5 units for NAV of Rs 2000/-
  • On 1.3.2022 you buy 4 units of NAV of Rs 2500/-
  • On 01.04.2022 you redeem the mutual fund when NAV is Rs 3000/-

Pass the Journal Entries

Ans – On 1.1.2022 following entry needs to be passed under Journal Entries, and the rest as follows: 

1.1.2022

By Mutual Fund Account

10000

 

To Bank Account

10000

1.2.2022

By Mutual Fund Account

10000

 

To Mark to Market Gain 

10000

 

By Mutual Fund Account 

10000

 

To Bank Account

10000

1.3.2022 

By Mutual Fund Account

7500

 

To Mark to Market Gain 

7500

 

By Mutual Fund Account 

10000

 

To Bank Account

10000

1.4.2022

By Mutual Fund Account

57,000

 

To Mark to Market Gain 

17,500

 

By Mutual Fund Account 

47,500

 

To Bank Account

27,000

Also read: How to Enter Sales Return Entry in Tally ERP 9?

The “lateral shift” is another type of entry. This is a facility provided by some mutual funds to investors. Investors are able to switch their investments from one scheme to another. If the stock market is in a bullish phase, investors can switch from a debt fund to an equity fund.  

Now let us take an example. Our investment amounting is  200000₹ 125 for a total no. of 1600 units which are shifted to another mutual fund for  ₹ 240000₹ 200 for a total no. of 1200 units. When you make the switch, you avail of a capital gain of  40000 (can be short-term or long-term). 

Conclusion

We hope that this article has given you clarity on the various concepts regarding Mutual Fund Accounting in Tally ERP 9.

FAQs

Q: How is NAV computed?

Ans:

NAV can be computed as – (Current value of investments held Income accrued Current Assets – Current Liabilities- Accrued Expenses)/ Number of Outstanding Units.

Q: Do mutual funds have financial statements?

Ans:

A mutual fund must issue annual and semiannual reports to its shareholders that give details about the fund's performance and finances.

Q: Can non-resident Indians (NRIs) invest in mutual funds?

Ans:

Yes, non-resident Indians can also invest in mutual funds. However, the investor must adhere to the Foreign Exchange Management Act (FEMA).

Q: Are there any tax benefits?

Ans:

If you invest in any tax-saving scheme, you can claim tax deductions of up to Rs 1.5 lakh under Section 80C. These schemes are referred to as Equity Linked Saving Schemes (ELSS).

Q: How are the details of mutual funds shared with investors?

Ans:

The Securities and Exchange Commission (SEC) requires mutual funds to share timely reports on the complete lists of their holdings every quarter.

Q: Can investors hold their units even in a fraction of 1 unit?

Ans:

Yes, Investors can hold their units even in a fraction of 1 unit.

Q: How frequently the NAV of a mutual fund is calculated?

Ans:

The calculation of net asset value (NAV) is done on a daily basis.

Q: What is an expense ratio?

Ans:

There is a certain fee that you need to pay to your fund managers and for administrative and other expenses.

Q: What is the minimum amount that you need to invest in a mutual fund scheme?

Ans:

Earlier, the minimum investment ranged from Rs. 500 to Rs. 5000 but now, investors can start investing with just Rs. 100.

Q: What is the Net Asset Value (NAV) of a scheme?

Ans:

NAV or Net Asset Value is equal to the Unit holder’s fund in the scheme (Net Assets) divided by several outstanding units.

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