Administrator of the specified undertaking of the Unit Trust of India : Significant Accounting Policies
SPECIFIED UNDERTAKING OF UNIT TRUST OF INDIA
NOTIFICATION
Mumbai, the 15th July, 2020
Ref: UT/HD/DOFA/SUUTI-Gazette/2020-21.— SIGNIFICANT ACCOUNTING POLICIES
A . Income Recognition:
I. Dividend income is recognized on the following basis:
- a. In respect of listed equity shares, dividend income is accrued on the “ex-dividend” date.
- b. In respect of unlisted equity shares, dividend income is accrued on date of declaration.
- c. In respect of preference shares, dividend income is accrued on the date of receipt.
II. Interest on debenture and other fixed income investments is recognized as income on accrual basis.
III. Profit or loss on sale of investments is recognized on the trade dates on the basis of weighted average cost.
IV. Unit Scheme 1964 Bonds , which owns the fixed assets, recovers service charges on mutually agreed basis approved by the Board of Advisors , from UTI AMC Ltd. for the usage of the said assets.
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B. Unit Premium Reserve:
In respect of US64, where units are repurchased at a premium over the face value under the special package announced by Government of India, the premium is charged to Unit Premium Reserve. Wherever US 64 units are repurchased under the net asset value (NAV) related prices, the discount is credited to unit premium reserve.
C. Expenses:
These are accounted for on accrual basis.
D. Investments
- Investments are stated at cost or written down cost.
- Purchase and Sale of Securities in Secondary market are accounted on trade dates.
- The cost of investment includes brokerage, service tax ,stamp charges and other taxes.
- Subscription in primary market is accounted as Investments, upon allotment.
- Right entitlements are recognized as Investment on “ex-right” dates.
- Bonus entitlements are recognized as Investment on “ex-bonus” dates.
- Investments in debenture / bonds , loans and deposits are treated and disclosed as current assets from the redemption/due date.
E. Valuation for Performing Investments
I. Equity and Equity related Securities:
a. Traded Securities
When a security is traded on any stock exchange within a period of 30 days (including the valuation date) and the aggregate volume of trade during such period is more than 50,000 or if the trade value is greater than Rs.5,00,000 the security is treated as traded security. These are valued at the closing prices on BSE in absence of which closing price of NSE is taken.
b. Non traded / Thinly traded / Unlisted securities:
Investments in securities, which have not been traded on any stock exchange in the aforesaid manner, are stated at fair value as detailed below.
Based on the latest available Balance Sheet, net worth shall be calculated as follows: Share Capital
- Plus: Reserves (excluding revaluation reserve) Less: Miscellaneous expenditure
- Less: Intangible Assets (in case of unlisted securities) Less: P & L Accounts (Debit balance)
The resultant figure is the Net Worth of the Company, which when divided by the number of shares outstanding gives the net worth per share.
Capitalized earning price will be arrived at by multiplying the earnings per share with the discounted industry P/E ratio. Average capitalization rate (P/E
ratio) for the industry shall be discounted by 75%. The value as per the net worth value per share and capital earning value calculated as above shall be averaged and further discounted by 10% for illiquidity so as to arrive at the fair value. In case of unlisted equity shares the discount factor will be 15% instead of 10%.
In case, the Earnings per share (EPS) is –ve, EPS value for the year shall be taken as zero for arriving at capitalized earning. In case latest balance sheet is not available within 6 months from the close of the year, the shares of such companies shall be valued to zero. If the net worth of the company is –ve the share would be marked down to zero.
II. Debentures , bonds, term loans and transferable notes – Debt Securities:
a. Traded Securities:
Investment in debentures and bonds are valued at the closing market rate as on the date of valuation and, in its absence, at the latest quote available during a period of fifteen days prior to the valuation date provided there is an individual trade in that security in marketable lot (presently Rs.5 Crore) on the Principal Stock Exchange or any other Stock Exchange.
b. Non-traded / Thinly traded securities:
Investment in non traded / thinly traded securities is valued as under:
- i) Rated Debt Securities:
Debt securities with residual maturity of greater than 60 days:Investment in securities with residual maturity period of greater than 60 days are valued at the average of prices provided by CRISIL and ICRA.Debt securities with residual maturity of up to 60 days:Investment in debt securities with residual maturity of up to 60 days are valued as on the valuation date on the basis of amortisation.Debt security with put/call options:Securities with call options are valued at the worst (lowest) of the call and securities with put options are valued at best (highest) of the put. Securities with both put and call options on the day are deemed to mature on the put/call day and are valued accordingly.Fully / Partly / Optionally Fully Convertible Debentures:
- Convertible portion of debentures, where the terms of conversion are available, is valued as equity at the closing market price or fair value applicable for, traded and thinly / non traded equity respectively less a discount of 10% towards liquidity.
- Non Convertible portion of Convertible debentures and the entire amount of convertible debentures where the terms of conversion are not available, are valued as per the norms applicable for non-convertible debentures as per para E(II)
ii) Unrated/ non investment grade Debt Securities:
Investments in unrated / non investment grade debt securities are valued at a discount of 25 percent to face value while deep discount bonds are valued at a discount of 25 percent to carrying cost.
III. Unquoted warrants:
Unquoted warrants are valued at the market rate of the underlying equity shares discounted for dividend element, if any, and reduced by the exercise price payable. In cases where the exercise price payable is higher than the value so derived,the value of warrants is taken as nil and where the exercise price is not available or the underlying equity is non traded/unlisted, such warrants are valued at cost.
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IV. Rights entitlements:
Rights entitlements for the shares are valued at the market price of the share, reduced by the exercise price payable, further discounted for dividend element, whenever applicable.
V. Money Market Instruments:
Investments in Money Market Instruments are valued at cost plus accrued interest up to the valuation date.
VI. Unquoted / thinly traded Preference shares:
- In the absence of rating for Preference share, the ratings available for the debt instruments of a company is used for valuation.
- ‘Unrated’ and ‘Below investment grade’, preference shares are valued at a discount of 25% to the face value.
- The cumulative convertible preference shares are valued as per the norms applicable for valuation of fully convertible debentures. If the details of conversion are not available, they are considered as ordinary preference shares and are valued accordingly.
- In case, dividend on preference is not received within 90 days, a discount of 15% is applied in the valuation. If the arrears continue for more than 1 year, the discount applied is 20%.
- If the redemption value is not received within 90 days, 100% provision of the redemption receivable is made. If the redemption is in parts and proceeds are not received within 90 days, in addition to the provision for redemption receivable, the discount as given above is applied on the balance.
- If there exists provision against a preference share and any other asset issued by the company is NPA such preference shares are valued at zero.
VII. Mutual Fund Units:
Mutual Fund Units listed and traded are valued at the closing traded price as on the valuation date. Unlisted MF Units and listed but not traded MF Units are valued at the Net Asset Value (NAV) as on the valuation date.
VIII. Corporate Action:
Corporate actions such as merger, demerger are referred to the Valuation Committee to discover the prices of such securities.
F. Depreciation and Provision:
I. Depreciation in the value of investments:
The value of investments as computed in accordance with norms above is compared to the cost of such investments and the resultant depreciation in the value of all securities, if any, is fully provided in the books. However, considering the prudent accounting policy, the appreciation in the value of securities is not considered as income in the books of accounts.
II. Provisions for non performing asset: (NPA)
- Provision is made in respect of outstanding interest income of the period prior to the date on which asset is classified as non-performing (NPA). An “asset” is classified as non-performing, if the interest and/or principal amount have not been received or remained outstanding for one quarter, i.e. 90 days or more from the day such income/ installment has fallen due. The interest and investment provision is made from the date the asset is classified as NPA.
- Provision for NPA is charged to Revenue Account
- Provision made as above is written back on receipt of dues, in phased manner.
- Provision is made in respect of dividend, where it remains outstanding for more than 120 days from the ex-dividend date.
G. Inter scheme transactions (ISTs):
Traded equity shares: ISTs of traded securities are effected at the intra-day (spot price) as on the IST date and in its absence, at the latest closing market price available during the last 30 days.
H. Custodian:
Stock Holding Corporation of India (SHCIL) provides custodial services and their fees are accounted for on accrual basis.
I. Fixed Assets :
- Fixed Assets are stated at historical cost less accumulated depreciation, except in respect of land, buildings, premises and building improvements which are stated at revalued cost less accumulated depreciation. In the event of revaluation, the resultant surplus on revaluation is shown as revaluation reserve. Depreciation on the appreciated amount on account of revaluation is charged to Revaluation Reserve.
- Depreciation is provided on the written down value method at the under mentioned rates except on those assets held for less than six months in the accounting year, where depreciation is provided at half the said rates:-
- Building and ownership premises 5%
- Furniture and Fixtures 10%
- Office equipments, Building Improvements,
- Software, Computers & Motor Vehicles 33.33% Leasehold land and premises are amortised equally over the period of lease.
- Building improvements in leased premises are depreciated at 33.33% in case the lease period exceeds eight years. However, in case the lease period does not exceed eight years, the same is amortised over the period of lease and in case the lease is not renewed within the period of eight years, the balance unamortised amount is charged in the last year of lease.
- Fixed assets, which are installed and put to use, pending final settlement of liabilities are stated on an estimated basis. On final settlement depreciation is adjusted, from the date the asset is put to use.
- On sale of Fixed Assets , the profit / loss arrived at after reducing the written down value of cost and appreciation of fixed asset on revaluation has been accounted in the Revenue account. The balance outstanding in revaluation reserve for assets sold has been transferred to General Reserve.
J. Reserve funds:
In accordance with the provisions of Section 25 B (1) of the erstwhile Unit Trust of India Act, 1963, the two Funds namely Asset Reconstruction Fund and Staff Welfare Fund, established through contribution from the Development Reserve Fund, though belonging to the SUUTI, are accounted under the Unit Scheme 1964 Bonds as a matter of administrative convenience.
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