Schedule - 09 - Accounting Norms, investments and expense ceiling - Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999

NINTH SCHEDULE SECURITIES AND EXCHANGE BOARD OF INDIA (COLLECTIVE INVESTMENT SCHEME) REGULATIONS, 1999 [Regulations 21(13), 43(1), 44(4)(iii), 71(1)(e)] ACCOUNTING NORMS, INVESTMENTS AND EXPENSE CEILING 40 [PART I -CEILING ON EXPENSES The expenses incurred shall be subject to a ceiling as specified below: (1) Initial Issue Expenses (a) These may include: cost of offer documents and related costs; marketing and selling expenses including agents commission, if any; fees to Lead Managers, if any, Registrars and collecting banks; initial rating and appraisal fees. (b) These expenses may be borne by the collective investment scheme. (c) These expenses shall not exceed 2.00 percent of the funds raised under the collective investment scheme. (2) Annual recurring expenses (a) Annual recurring expenses consist of the following: i. Management and Advisory Fees; ii. Registrar fees for transfer of units sold or redeemed; iii. Fees and expenses of trustees; iv. Audit fees; v. Subsequent Rating and Appraisal fees; and vi. Listing fees. (b) The annual recurring expenses shall not exceed 2 percent of the funds raised under the collective investment scheme. (c) Incentive fees No incentive fee based on performance of the scheme shall be charged to the scheme in any form or manner. (3) Other Expenses Other direct costs, if any, which are incidental to the operation of the collective investment scheme may be charged to scheme, as may be approved by trustee: Provided that granular (item wise) list of direct costs covering at least eighty percent expenses shall be disclosed in offer document and a quarterly disclosure of actual expenses shall be made. (4) All other expenses shall be borne by the Collective Investment Management Company: Provided that collective investment scheme related expenses including commission paid to distributors, by whatever name it may be called and in whatever manner it may be paid, shall necessarily be paid from the scheme only within the regulatory limits and not from the books of the Collective Investment Management Company, its associate, promoter(s), trustee or any other entity or through any other route: Provided further that Collective Investment Management Companies shall adopt full trail model of commission in all schemes, without payment of any upfront commission or upfronting of any trail commission, directly or indirectly, in cash or kind, through sponsorships, or any other route. ] PART II - ACCOUNTING NORMS Plantation 17 [collective investment scheme] 1. Accounting norms for plantation 18 [collective investment scheme] 2. Unit Capital 2.1 All amounts received from an investor, by whatever name called, during the period the 19 [collective investment scheme] is open for subscription shall be treated as towards the sale of units of the 20 [collective investment scheme] and shall be accounted as Unit Capital. 2.2 Unit capital will be disclosed in the Balance Sheet of the 21 [collective investment scheme] under the head Sources of Funds (in the same manner as Share Capital in the case of a limited company). No portion of Unit capital shall be apportioned to revenue or to any other account under any circumstances. 3. Costs Relating to Land 3.1 Land Acquired with Ownership Rights should be accounted as a Fixed Asset in accordance with Accounting Standard 10 ( AS-10 ) on Accounting for Fixed Assets issued by ICAI. In respect of land with ownership rights, the cost of the land should be amortised over the 22 [collective investment scheme] period by way of a suitable charge to Crop Development Expenses . 3.2 Land acquired under lease may either be against: Payment of (non-refundable) premium; or Payment of monthly or periodic lease rentals Land acquired against payment of non-refundable premium should be accounted as a Fixed Asset and separately disclosed in the Fixed Assets schedule. Such premium paid for leasehold land should be capitalised as cost of land and amortized over the lease period or the period of the 23 [collective investment scheme], whichever is less. In respect of land acquired against the payment of periodic lease rentals, such amounts shall be charged to the profit and loss account. The following disclosures are required in the financial statements: Period of Lease Owner of land Relationship of owner with trustees and directors of CIMC If lease period is shorter than tenure of the 24 [collective investment scheme], the period of lease and conditions for future renewals of lease. 3.3 Land Development Expenses These include expenses on : New access roads and fencing Major changes in land contours Levelling, uprooting and terracing Regular upkeep and maintenance of land Expenses of a capital nature should be added to the cost of land. In case of leasehold land, these expenses should be written off over the period of the lease or the period of 25 [collective investment scheme], whichever is less. Expenses of a revenue nature should be charged to the Profit and Loss Account in the year in which they are incurred. 3.4 Infrastructure and other facilities shall include : Roads and Fencing Security and Research and Development Buildings Drip Irrigation systems, water systems Agriculture Equipments and Production facilities These should be accounted as Fixed Assets in accordance with AS-10 on Accounting for Fixed Assets issued by ICAI. 3.5 IAS 36 requires that impairment losses in respect of assets should be recognised. Impairment arises whenever an asset s carrying amount exceeds its recoverable amount. All impairment losses should be provided for. 3.6 In case such assets are taken on lease, then the amounts spent should be accounted on the same basis as mentioned in Paragraph 3.2 and the disclosure requirements mentioned therein will also apply. 4. Fixed Assets (other than land and related infrastructure facilities) 4.1 Such Fixed Assets should be accounted in accordance with AS-10 on Accounting for Fixed Assets issued by ICAI Basically that the cost of a fixed asset comprises its purchase price and any attributable cost of bringing the asset to its working condition for its intended use. 4.2 These assets should be depreciated as per Schedule XIV to the Companies Act, 1956. 4.3 Capital Subsidies received should be accounted as per Accounting Standard ( AS ) 12 on Accounting for Government Grants issued by ICAI Basically that the recognition of a grant should depend on assurance of the compliance of conditions and certainty of receipts and grants relating to specific fixed assets should be deducted from the gross value of assets in arriving at their book value. 4.4 As required by IAS 36, impairment losses in respect of assets should be recognised. Impairment arises whenever an asset s carrying amount exceeds its recoverable amount. 4.5 In case such assets are taken on lease, then the amounts spent should be accounted on the same basis as mentioned in Paragraph 3.2 and the disclosure requirements mentioned therein will also apply. 5. Crop Development Expenses 5.1 There are generally expenses incurred for development and upkeep of crop. This includes expenses on: Soil Manuring. Sapling and crop Plantation. Regular maintenance and upkeep of crop. Lease rentals paid for land and for any other assets directly attributable to crop development. Amount proportionately amortised over the 26 [collective investment scheme] period relating to cost of land. Depreciation and maintenance of fixed assets directly attributable to crop development. Other expenses directly attributable to crop development. These expenses should be accounted as Crop Development Expenses . They should be disclosed as a separate item appearing between Fixed Assets and Current Assets in the Balance Sheet. 5.2 The total of Crop development expenses at the end of the year should be compared with Net Realisable Value ( NRV ). NRV would generally mean the amount that would be realised in the normal course, in case the standing crops are disposed of on that day. NRV can be determined on the basis of estimated selling price in the ordinary course of business less estimated cost to be incurred in future for bringing the crop to maturity, and the cost necessarily to be incurred to make the sale. In case the NRV is lower than the total of the crop development expenses at the year end, then a suitable provision for the difference between these two figures should be made and disclosed as follows : Crop Development Expenses (At Cost) X Less : Provision for dimintion in value Y ---------- X-Y 5.3 The crop development expenses and the provision for diminution will be carried forward to the next year at gross values. A similar exercise would be done at the end of each year. In case the NRV at the end of the second or subsequent year is greater than/or equal to cost in the respective year, then it will be possible to recoup the provision account by transferring it to the credit of Profit and Loss Account only to the extent such a provision was made in the past. The basic principle of valuation at lower of Cost or NRV, would still hold good every year. In case the crop is at such a stage that it is not possible to determine NRV, these expenses should be valued At Cost and a suitable disclosure to that effect should be made in the financial statements. These expenses will be set off against income arising from the sale of crops, either in stages or at the terminal point. 5.4 Considering the peculiar nature of this expenditure and the long production cycle, Crop Development Expenses should be separately disclosed between Fixed Assets and Current Assets as discussed in Paragraph 5.1 above. 6. Investments 6.1 All investments should be carried at lower of cost and fair value determined either on an individual investment basis or by category of investment, but not on an overall (or global) basis. 6.2 In respect of quoted investments, market value generally provides the best evidence of fair value. 6.3 Unquoted investments in debt instruments should be valued on a yield to maturity basis, the capitalisation factor being determined for comparable traded investments and with an appropriate discount for lower liquidity. 7. Inventory Valuation Inventories other than Crop Development Expenses should be valued as per the basic principles laid down by AS 2 on Inventory Valuation Inventory should be valued at the lower of cost and net realisable value and the Accounting Policy for valuation should be disclosed in the financial statements. 8. Revenue Recognition 8.1 Revenue should be recognized as per Accounting Standard ( AS ) 9 on Revenue Recognition issued by Institute of Chartered Accountants of India, to the extent it is applicable Revenue should be recognised only if there is a reasonable certainty of collectibility or measurability. 8.2 Income would generally arise from the following sources: Sale of Crops - the sale proceeds of crops arising at periodical intervals should be accounted during the year in which the sale has been effected. The cost allocable to such sale proceeds should be set off against the crop development expenses account and the surplus, if any, should be transferred to Profit and Loss account. Sale of Residuals and Scraps - the sales proceeds shall be accounted as income in the year of sale and credited to Profit and Loss account. Income from Investments - income arising out of investments of surplus bank balances, etc. shall be accounted on a time proportion basis taking into account the amount outstanding and the rate applicable. Dividend from Investments - dividends, if any, will be recognized when the right to receive payment is established. Sale of Standing Crops at terminal point - sale proceeds/transfer value of the standing crops at the terminal point shall be accounted as and when they are disposed off/transferred. The profit arising on such transactions over the book value shall be accounted at the point of sale/disposal; this should be set off against the crop development expenses. 9. Expenses 9.1 Expenses other than Crop Development Expenses can be broadly classified as under: Initial Marketing and Launch Expenses Normal Business Expenses 9.2 Initial issue expenses Initial issue expenses may be treated as deferred revenue expenses to be written off over eight years or duration of the 27 [collective investment scheme] whichever is earlier. 9.3 Normal Business Expenses would include: Registrar services for transferor of units sold or redeemed CIMC and trustee Fees Depreciation Audit Fees Subsequent Rating and Appraisal Fees Listing Fees Other costs, (if any), which are incidental for the operation of the 28 [collective investment scheme], as may be approved by trustees. These expenses shall be treated as an expense of the year in which they are incurred and written off to the Profit and Loss Account. 10. Returns to Investors 10.1 Interim Returns to investors in respect of CIS can be paid only out of the distributable surplus of the CIS. Interim Returns can be paid only in cash and not in kind. 10.2 Distributable surplus means the profits of the CIS after: Providing for all expenses on accrual basis including depreciation as discussed in paragraph 4.2 above Providing for diminution in value of crop development expenses as discussed in paragraph 5.2 above Fully setting off the debit balance in Profit and Loss account, if any Transferring 50% of the remaining balance to a separate reserve called Special Reserve 10.3 The amount of interim returns distributed to investors should not exceed the distributable surplus. 10.4 The balance in the Special Reserve cannot be utilised for any purpose except for distribution to unit holders at the termination of the 29 [collective investment scheme]. 10.5 At the end of the tenure of the 30 [collective investment scheme], the surplus of the 31 [collective investment scheme], if any, shall be calculated on the basis of realisable value of all the assets, including land, of the 32 [collective investment scheme]. The surplus of the 33 [collective investment scheme] distributed in cash shall be in proportion to unit capital. ACCOUNTING NORMS: LIVESTOCK 34 [COLLECTIVE INVESTMENT SCHEME] 1. Costs relating to owned land 1.1 Land acquired with ownership rights should be accounted as a Fixed asset in accordance with Accounting Standard 10 (AS-10) on Accounting for Fixed Assets issued by ICAI. 1.2 Cost of such land should not be amortised over the 35 [collective investment scheme] period (refer paragraph 2.3 above). 2. Livestock development expenses 2.1 There are generally expenses incurred on rearing and development of livestock including maintenance and upkeep. This includes expenses on: Cost of base stock. Food costs. Medicines and other maintenance. Cost of artificial insemination. Lease rentals paid for land and for any other assets directly attributable to livestock development. Depreciation and maintenance of fixed assets directly attributable to livestock development. Any other expenses directly attributable to livestock development. These expenses should be accounted as Livestock Development Expenses . They should be disclosed as a separate item appearing between Fixed Assets and Current Assets in the balance sheet. (Reference is invited to Paragraph 5.1). 2.2 Valuation of livestock development expenses and provision for diminution in value would be in the same manner as in respect of crop development expenses which is discussed in Paragraphs 5.2 and 5.3. 3. Livestock Trading 3.1 Separate quantitative information should be maintained in respect of livestock that is procured for resale without being used in rearing/development activity. An annual trading account should be prepared in respect of Livestock traded during the year (which shall be exclusive of Livestock under rearing/development). 3.2 A suitable annual charge should be made in respect of cost of maintenance etc. of the livestock which remained for trading purpose only. The cost of maintenance etc. to be charged to the livestock trading account shall be calculated on the basis of quantitative proportion of livestock held under rearing/development and for trading. 4. Valuation of by-products 4.1 Inventory of by-products at the year end (i.e., manure in case of Goat, eggs in case of Poultry etc.) should be carried at lower of cost or market value . 4.2 Cost of by product shall be calculated on the basis of specific cost incurred on the by-product after the point of separation to make it marketable. PART III -FORMAT OF FINANCIAL STATEMENTS Basic Framework relating to Financial Statements 1. Scheme wise financial statements 1.1 Broadly, financial statements would consist of Balance sheet Revenue account 1.2 These should be prepared schemewise 2. Contents of scheme wise Balance sheet 2.1 Asset side of the balance sheet The assets of the balance sheet shall be grouped into the following categories : Fixed assets Investments Crop development expenses Current assets Deferred revenue expenditure I. Fixed assets Cost, accumulated depreciation and net block should be disclosed for each of the following: Land Leasehold land Land development expenses Infrastructure and other facilities Buildings Plant and machinery Furniture and fixtures Research and development assets Others II. Investments The following types of investment shall be separately disclosed: Central or State Government securities Deposits with scheduled banks Debentures, Bonds and Deposits with public sector companies and financial institutions Other Investments III. Crop Development Expenses The following information should be disclosed: Opening balance Expenses incurred during the year Deductions Closing balance In addition, net realisable value at year end and the Break up of various expenses included in closing balance should be disclosed. The closing balance in provisions for diminution in value in Crop Development Expense Account, if any, will be shown as a deduction from closing balance of Crop Development Expenses. IV. Current assets The following should be separately disclosed : Balances with banks in current account Cash on hand Sundry debtors, distinguishing between good and doubtful Inventories Outstanding and accrued income Advances recoverable in cash or kind Deposits Others V. Deferred revenue expenditure The following should be disclosed: Opening balance Additions during the year Amount amortised during the year Closing balance VI. The debit balance in Profit and Loss Account, if any, shall be brought out 2.2 Liability side of the balance sheet Liabilities in the balance sheet shall be grouped into the following categories: Unit Capital Reserves and Surplus Current liabilities and provisions I. Unit Capital Unit capital (including number of units and face value per unit) II. Reserves Surplus The following should be separately disclosed: General reserve Revaluation reserve Special reserve Any other reserve (disclosing its nature) Surplus in Profit and Loss account III. Current liabilities and provisions (a) Current Liabilities The following should be separately disclosed : Sundry creditors Statutory liabilities Bank account overdrawn as per books Unclaimed distributed income Others (b) Provisions The following should be separately disclosed: Provision for gratuity Proposed income distribution on unit capital Provision for taxation Other provisions IV. Contingent liabilities Disclosure should be made of all contingent liabilities, showing separately the nature and amount of each such liability. 3. Contents of scheme wise Revenue account 3.1 Income The following should be separately disclosed: Surplus on Sale proceeds from crops Dividend Interest Profit on sale/fixed assets and investments Sale of residuals and scrap Other income (indicating nature) 3.2 Expenses and losses: The following should be separately disclosed: Crop development expenses also disclosing each major item of expense under this head Provision for doubtful debtors and other assets Loss on sale of fixed assets and investments Management fees Trusteeship fees Registration and local charges Audit fees Repairs and maintenance Deferred revenue expenses written off Depreciation of fixed assets Registration fees Other operating expenses 3.3 Increase/decrease in amount of Crop Development Expenses. 4. Accounting policies Accounting policies in respect of the following should be separately disclosed at one place and form part of the financial statements: (a) Fixed assets 1. Land 2. Others (b) Depreciation 1. Land 2. Others (c) Investments (d) Crop Development Expenses (major items under this head should be disclosed) (e) Inventories (f) Revenue recognition (g) Retirement benefits (h) Foreign currency transactions (i) Deferred revenue expenditure 5. Approval and authorisation The financial statements shall be signed by the schemewise fund managers and the Board of trustees and reported upon by the Auditors. They should be approved at a meeting of the Board of Directors of the Collective Investment Management Company and also at a meeting of the trustees or in case of a trustee company, by the Board of directors of the trustee Company. 6. Auditors report 6.1 All funds operating CIS shall be required to get their accounts audited in terms of a provision to that effect in their trust deeds. The Auditors Report shall form a part of the Annual Report. It should accompany the Balance Sheet, Profit and Loss Account and Revenue Account. The auditor shall report to the Board of trustees and not to the unitholders. 6.2 The auditor shall state whether:- (a) he has obtained all information and explanations which, to the best of his knowledge and belief, were necessary for the purpose of his audit, (b) the Balance Sheet, Profit and Loss Account and the Revenue account are in agreement with the books of account of the 36 [collective investment scheme]. 6.3 The auditor shall give his opinion as to whether: (a) the Balance Sheet gives a true and fair view of the schemewise state of affairs of the 37 [collective investment scheme] as at the balance sheet date, and (b) the Profit and Loss Account gives a true and fair view of the surplus/deficit of the 38 [collective investment scheme] for the year/period ended at the Balance Sheet date, and (c) the Revenue Account gives a true and fair view of the schemewise surplus/deficit of the 39 [collective investment scheme] for the year/period ended at the balance sheet date. ************** NOTES:- 1 Substituted by the SEBI (Collective Investment Schemes) (Amendment) Regulations, 2014, w.e.f. 9-1-2014. 2 ibid. 3 ibid. 4 ibid. 5 ibid. 6 ibid. 7 Substituted by the SEBI (Collective Investment Schemes) (Amendment) Regulations, 2014, w.e.f. 9-1-2014. 8 ibid. 9 ibid. 10 ibid. 11 ibid. 12 ibid. 13 ibid.. 14 ibid. 15 ibid. 16 ibid. 17 Substituted by the SEBI (Collective Investment Schemes) (Amendment) Regulations, 2014, w.e.f. 9-1-2014 18 ibid. 19 ibid. 20 ibid. 21 ibid. 22 ibid. 23 ibid. 24 Substituted by the SEBI (Collective Investment Schemes) (Amendment) Regulations, 2014, w.e.f. 9-1-2014. 25 ibid. 26 Substituted by the SEBI (Collective Investment Schemes) (Amendment) Regulations, 2014, w.e.f. 9-1-2014. 27 Substituted by the SEBI (Collective Investment Schemes) (Amendment) Regulations, 2014, w.e.f. 9-1-2014. 28 ibid. 29 Substituted by the SEBI (Collective Investment Schemes) (Amendment) Regulations, 2014,w.e.f. 9-1-2014. 30 ibid. 31 ibid. 32 ibid. 33 ibid. 34 ibid. 35 ibid. 36 Substituted by the SEBI (Collective Investment Schemes) (Amendment) Regulations, 2014, w.e.f. 9-1-2014. 37 ibid. 38 ibid. 39 ibid. 40. Substituted vide Notification No. SEBI/LAD-NRO/GN/2022/84 dated 10-05-2022 before it was read as, PART I -CEILING ON EXPENSES The expenses incurred shall be subject to a ceiling as specified below : (1) Initial Issue Expenses (a) These may include: cost of offer documents and related costs; marketing and selling expenses including agents commission, if any; fees to Lead Managers, if any, Registrars and collecting banks; initial rating and appraisal fees. (b) These expenses shall be borne by the 1 [collective investment scheme]. (c) These expenses shall not exceed (i) 7.00 per cent of the funds raised under the 2 [collective investment scheme] for a 3 [collective investment scheme] of duration upto 8 years and (ii) 9.00 per cent of the funds raised under the 4 [collective investment scheme] for a 5 [collective investment scheme] having a duration of more than 8 years. (d) These expenses shall be amortized equally over a period not exceeding seven years or the period of the 6 [collective investment scheme], whichever is less. (2) Management and Advisory Fees to CIMC (a) Such fees may consist of: Basic Fee Incentive Fee (b) The basic fee shall not exceed: (i) 1.00 per cent each year of the funds raised under the 7 [collective investment scheme] for the first five years of operation of the 8 [collective investment scheme]; (ii) 1.25 per cent each year of the funds raised under the 9 [collective investment scheme] for the next five years of operation of the 10 [collective investment scheme]; (iii) 1.50 per cent each year of the funds raised under the 11 [collective investment scheme] for the subsequent period thereof till the termination of the 12 [collective investment scheme]. Incentive fees The incentive fees shall not exceed 25 per cent of the excess return realized over and above the indicative return as shown in the offer document (excluding the unit capital) at the time of the termination of the 13 [collective investment scheme]. In case the return at the termination of the 14 [collective investment scheme] is less than or equal to the indicative return as shown in the offer document, then no incentive fees shall be paid. (3) Other Expenses Only the following expenses should be borne by the 15 [collective investment scheme] namely : registrar services for transfer of units sold or redeemed; fees and expenses of trustees; audit fees; subsequent rating and appraisal fees; listing fees; other direct costs (if any) which are incidental to the operation of the 16 [collective investment scheme], as may be approved by trustee; (4) All other expenses shall be borne by the CIMC.