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CA Ashish Pathak (Employed at Cipla Ltd.)     20 June 2013

As-13 doubt

Hello Caclub, We all know that long term investments are valued at cost. Now I am confused about valuation of investments in mutual funds. My query is that in case of mutual funds, several times dividend is reinvested. In such cases how should it be valued? Should it be valued at cost only or should we also capitalise the amount of dividends reinvested. Your advice will be highly appreciated. Please help. Regards, Ashish Pathak


 4 Replies

shivam gupta

shivam gupta (Student)     21 June 2013

In case of Mutual Fund NAVs (Net Asset Value) should be used. There are 2 types of Mutual Fund ,one is Open funded (In this type of MF, investor can sell his Investment anytime through stock exchanges) and second one is close ended (In this type of MF, the co. which issued the MF plan give you a specific time at which you can sell your mutual fund to them).

You can find NAV of Openended MF on moneycontrol.com

in case of Close ended, go to the site of the co. which issued the Mutual Fund Plan, on their site you can get NAVs of each day.

 

Accordingly you are intelligent enough to apply AS 13.

Ateeq

Ateeq (CA - Final)     22 June 2013

Dear Ashish,

 

For the purpose of valuation we need to understand one thing that what is long term investments and what is short term investment.

Although it seems that you know the meaning, hence on  this presumption I would like to say that, If after reinvestment also you are expecting to hold your investments for period more than 12 months then in my opinion you can account the same on the principle of long term investments. Irrespective of the fact that you have invested it now. Because for holdings of a shorter term, since you will be liquidating it immediately or more sooner its better to account for the loss and similarly incase of long term need not give effect for changes unless they're certain and constant.

Hope I have answered, but feel free to contact for any queries in this regards.

CA Ashish Pathak

CA Ashish Pathak (Employed at Cipla Ltd.)     22 June 2013

Thanks Shivam n Ateeq for your replies. Yes Ateeq, agree with you but the situation here is that my client has long term investments in mutual funds. Now as per the AS13 , it should be valued at cost. In case of mutual funds, dividends are often re-invested n the investor is allotted required number of units in lieu of such dividends. So in such cases how should we value these investments in mutual funds. Should we capitalize the amount of dividends reinvested or should we continue to record these investments at costs??? Hope you understand my query. Thanking You. Kind Regards Ashish Pathak.
Mihir Manohar

Mihir Manohar (CA Final - Article Assistant)     15 September 2013

Hey Ashish, simply Debit the MF Investment A/c by crediting the amount of dividend Re-invested. I also agree with Shivam and Ateeq and this is what the best possible Journal Entry I think. Correct me if I am wrong.

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