State Street:-

It is Custodian bank responsible for safekeeping of assets and provides administrative, custody and asset
management services to institutional investors to worldwide

1 Capstock:-Monitor and Verify-Subscription and Redemption

2 Expense Accrual:-Monitor and Reconcile operating expenses

3 Income Changes:-Account for interest, Dividends, Amortization and distribution

4 Trade Verification:-Verify all trades

5 Nav Calculation: -consolidation of caps tock & expense and income and trades

Hedge fund:- a hedge fund is an alternative investment that is designed to protect investment portfolios
from market uncertainty

* Managers have more freedom in their use of investment tools and an ability to change strategy as
they see fit.

* Fees Hedge funds typically charge a fee based on the performance of the fund; the better the fund
performs in the market, the more the Investors pay in fees.

Mutual Funds: - collecting from the investor and investing some objective

* Managers must adhere strictly to the strategy described when the fund was established and Must
choose from a rather limited range of investment types.

* Mutual funds are highly regulated in terms of the amount they can charge in fees and the types of fees
they can charge. (For instance, 12b-1 fees are those related to the administrative Functions of the fund
and are covered by the Securities and Exchange Commission

Types of Mutual funds

Opens end: -

Investor can buy and sell units of funds at NAV related prices at any time, directly from the market

Close end fund:-

Fund is open for sale to investors for a specified period, after which further sales are closed

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Expense: -An expense is a cost of doing business.

Expense Type: - Accrued. Direct and Prepaid

Accrued: - Expenses are recognised in the period to which they relate, not necessarily when they are
actually paid - this is called accruing for expenses and it helps to avoid shocks or dramatic changes to the
NAV

Fixed: -Fixed Expenses are those with a fixed daily amount-Example-Audit, Custody,

Formula is Expense Amount/ 365 Days

Variable: - Variable expenses are based on a percentage (basis points) of prior day fund’s TNA as defined
by client. Example Managements Fee,

Formula is PdTna* rate/No of days in the year

Accrued Expense-Expense A/c Dr. to Accrued Expense A/c - Decrease the NAV

Payment Entry-Accrued Expense A/c Dr.To Cash A/c - No effect NAV

Direct Expense: -Direct expenses are expenses which are not anticipated,These are unplanned expenses

Direct Expense A/c Dr. to Cash/Bank A/c Decrease the Nav

Pre-Paid Expense: -A pre-paid is an expense which is paid in advance, because of this advance payment
the expense is initially recognised as an asset

Prepared Expense A/c Dr. to cash A/c – NO Effect on NAV

Periodic Write Off of Prepared Expense

Expense A/c Dr. to Prepared Expense A/c- Decrease the NAV

Corporate action: - Corporate action is an event which brings material changes to a company and it
effects company shareholder and as well as bondholders

Types of cooperate actions

Stock split: - in this corporate actions company existing shares divided into multiples share 2 for 1
Reason -make investor more affordable

Reverse Stock Split:-like wise increase the number of shares and reducing number of outstanding shares

Bonus Issue: - it is an additional dividend given to the shareholders that can be in form of cash or stock

When company have outstanding performance with the surplus profit. Impact on Nav

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Merger: - merger is an event where two or more companies merge into one entity to be more
competitive and more profitability

Acquisition: - Bigger Company acquiring a smaller one for further expansions

Spin off: -it means a company breaking up itself into smaller units, the creation of an independent
company through the sale or distribution of new shares of an existing business of a parent company and
impact on nav

Right issue: - it refers to offering additional shares to the current shareholder of the stock This is done
by the company to raise the capital for further expansion and it impact on Nav

Right to buy: -the stock of discounted rate than market price attractive

Derivative:-A derivative is a contract between two or more parties whose value is based on an agreed-
upon underlying financial asset, index, or security.

Forward: -is a customized contract between two parties to buy or sell an asset at a specified price on a
future date used for today

Future: - is agreement to buy or sell assets like commodities,stock or bonds at a future date for a
specified price

Options: -isan agreement buyer and seller that gives purchase of the option the right to buy or sell a
particular asset at a letter date on agreed upon price

Call option: - call gives the buyer the right to buy the underlying asset

Put option: - put gives the buyer right to sell the underlying asset

FuturesForwards

Traded on organized exchange Over the Counter

Standardized Customized

More liquid less liquid

Follows daily settlementat the end of the period

Portfolio: - is a collection of investment instrument like share, mutual funds, and bonds’ fixed deposit

Portfolio Management:-is an art of selecting the right investment tools in the right proration to
generate optimum returns from the investment made

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Zero coupon: - is a debt security that doesn't pay interest but is traded at a deep discount, rendering
profit at maturity when the bond is redeemed for its full face value

Record Date:-the record date is set by the board of directors of a corporation and refers to the date by
which Investors must be on the company's books in order to receive dividends for a particular stock.

Ex-Date:- ex-dividend date was created to allow all pending transactions to be completed before the
record date.

Payable Date:-A payment date is the date on which a declared stock dividend is scheduled to be paid.

Capital Market:-is a market where buyer and seller engage in trade of financial securities like, bonds,

Stocks, Etc.

Primary Marker:-deal with trade of new issue stock & other securities

Secondary Market:- deal with exchange of existing or previously issued securities

Bond:-is a debt instrument which is issued by the company to raise the money by borrowing

Accrual Method 30/360, 30/365, Act/Act, Act/365, Act/360

Equity Shares:- are the shares that carry voting rights and the rate of dividend also fluctuate every year
as it depends on the amount of profit available to the company. On the other hand,

Preference Shares:- are the shares that do not carry voting rights in the company as well as the amount
of dividend are also fixed.

 NPT:-takes an oversight of all upstream activities (Capstock, Expense, Distribution, Trade,

Corporate Action, Income) with regards to impact on NAV and thereby verifying the authenticity
of the each impact

 Pre Nav-It is a step performed after current day’s trades have been booked to the accounting
system (MCH) and sent for pricing (Navigator)

 This report produces current day’s EOD portfolio shares which include prior day EOD shares
plus current day trades. The report also produces what we call the Adjusted Market Value
(AMV).

 The ‘Total Portfolio Shares’ and the ‘Adjusted market Value’ must both be verified (NAV alert
vis-à-vis Navigator)

 Mark-To-Market

To know unrealized gain or loss due to fluctuation in exchange ratein forging currency

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 Formula

MTM=Shares/price*Exchange Rate

Impact Reconciliation

 Usually the change in the NAV for a fund is mostly from Incomes, gains & losses & market value
changes. Summary Recon helps us analyze these NAV impacts

Nav Impact:-Nav impact=Dollar Amount of Activity/Outstanding Shares

 The first step in valuation is to compare the portfolio and capstock shares from a Navigator
report (NAV Strip) to MCH / NAV Alert (Export Worksheet). The purpose of completing this step
is to ensure no late trades were booked. We need to make sure we are pricing the correct
number of shares. In addition, double check shares outstanding once more to ensure accuracy
because it plays such a crucial role in calculating the NAV

Calculations

 The difference between the current base value and the original base value is the mark to market
appreciation/depreciation

Spot and Fx

• Spots usually settle within 3 days from TD

• Forwards usually settle 30,60 or 90 days from TD

Nav: - net asset values is nothing but value per share of a mutual fund

TNA= assets- liabilities

Nav= Assets-Liabilities /Outstanding shares

GAV:-The NAV upon which outperformance is assessed

GAV=Nav before deducting performance fee

Performance fee: - it is a part of investment manager Remuneration; we also called it incentive fee

Formula

Ending Balance-Opening balance*Participant Fee in %

Performance Fee Accrual Entry

Expense A/c Dr. to Liability A/c

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Performance Fee Payment Entry

Liability A/c Dr. to Assets A/c

Accounting Entries

Subscription Entry

Receivable for Shares created A/c To Capstock A/c

Purchase Settlement Entry

Cash A/c Dr To Receivable for shares created A/c

Redemption Entry

Shares Liquidated A/c Dr.to Payable for shares liquidated A/c

Redemption Settlement Entry

Payable for shares liquidated A/c Dr to Cash A/c

Shares Purchase Entry

Average cost A/c Dr. to payable for investment purchased A/c

Purchase Settlement Entry

Payable forInvestment purchased A/c Dr. to cash A/c

Shares Sell Entry

Receivable for investment sold A/c Dr.To Average Cost and Dr/Cr Loss/gain

Sell Settlement Entry

Cash A/c Dr. to Receivable for investment Sold A/c

Written off Entry

Profit and Loss A/c Dr. to Bad debt A/c

Bad Debt Entry

Bad debt A/c Dr. to Particular Debtor A/c

Goods burn By Fire

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Loss Of good A/c Dr. To Purchase A/c

Claim Entry

Claim receivable A/c Dr. to Loss by Fire A/c Dr. to Loss of Goods A/c

Dividend Payable Entry

Cash A/c Dr. To Tax Withholding Payable A/c Dr. To DVD Receivable A/c

Reclaim Receipt Day Entry

Tax Reclaim Receivable A/c Dr. to Cash A/c

Amortization:-Allocating the cost of an intangible asset over a period of time.

Accretion:-Accretion is the increase through time of a natural asset like land or a financial asset.

Equalization:-Is used to prevent Unfair Distribution of Funds Earning.

Formula

Income Nav = Undistributed Net income/outstanding shares

Equalization Factor- Income/Pd Tna

Unit price comes from income=equalization factor * Nav

Equalization Formula=unit price that comes from income* Shares

Accounting Entry

Income Distribution

Receivable income equalization for income shares sold A/c Dr.

To IncomeEqualization for income shares sold A/c

Capital gain Distribution

Income Equalization for Income Shares Repurchased Dr.

To Payable Income Equalization for income shares repurchased A/c

Single manager fund: - has a only one single invest manager

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Multi manager fund: -has more than one investment manager

Umbrella funds: - a collective investment scheme which is a single legal entity

Fund of fund:-is an investment fund that uses an investment strategy of holding a portfolio of other
investment funds

Multi class fund:-A single portfolio divided into classes of shares-as per classes’ nav to be declared

Master feeder Fund:-a master feeder fund is a type of hedge fund structure, Investor place their money
into feeder funds which then invests into master fund.it is the master fund that actually invests in the
market, all the market trading occurs at the master fund level

Advantage all investment portfolio consulates into one

Over the counter (OTC):-The otc is a market where financial instrument such as currency,stock and
commodities are traded directly between two parties, there is no physical location, trading is done
electronically

Arbitrage: - purchase and sale of same security at same time in different market to earn more profit
from unequal prices

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