ESCORTS MUTUAL FUND

ESCORTS BALANCED FUND

SCHEDULE FORMING PART OF THE ACCOUNTS

SCHEDULE 9

SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS

1.         SIGNIFICANT ACCOUNTING POLICIES

1.1       Investments:

(1)        Transactions in securities are recognised as of the trade date. Where securities transactions take place outside the stock market, the transaction is recorded, in the event of purchase, as of the date on which an enforceable obligation to pay the purchase consideration is obtained or, in the event of sale, when an enforceable obligation to collect the sale proceeds or deliver the securities sold, as the case may be, is obtained.

(2)               The cost of investments, inter alia includes brokerage, stamp duty, cost of stamps, security transaction tax, custodian charges directly identifiable with an investment and service tax levied (if any) at the time of purchase but excludes interest accrued upto the date of purchase. Any front-end discount / incentive received / receivable in respect of placement of debt instruments is reduced from the cost of investments.

(3) (a)  Traded equity securities are valued at the closing (last trade)  price on the valuation day and, if the same is not available, at the closing (last trade) price of the earliest previous day within not more than 30 days prior to the valuation day, for which a quotation is  available on the National Stock Exchange, in the first instance or the Bombay Stock Exchange.

(b)       Traded debt securities are valued at the closing (last trade) price on the valuation day and, if the same is not available, at the closing (last trade) price of the earliest previous day within not more than 15 days prior to the valuation day, for which a quotation is available on the National Stock Exchange.

(c)        Non-traded and thinly traded securities are valued in “good faith” in accordance with the guidelines for valuation of securities issued by SEBI from time to time and approved by the Board of Trustees. Valuation of equity shares is based on the net asset value and earnings capitalisation; valuation of debt securities is mainly based on the Yield to Maturity applied with reference to credit rating, benchmark yields, mandatory additional discounting factors and other criteria. Investments in securities having maturity not exceeding 182 days are valued at cost plus amortisation for premium/ discount.

(d)    Based on the Guidance Note on Accounting for Investment in the Financial Statements of Mutual Funds issued by the Institute of Chartered Accountants of India, net unrealised gain or loss in the value of investment is determined separately for each category of investments.  The change in net unrealised loss between two balance sheet dates is recognised in the Revenue Account and the change in net unrealised gain is adjusted in the Unrealised Appreciation Reserve.

1.2              Revenue and Expense Recognition:

(1)     Interest and other income are accounted on accrual basis. Dividend is recognised on the date the share is quoted on an ex-dividend basis.   

(2)     Gains and losses on sale of securities is determined by considering the weighted average cost.

(3)     Premium earned on equity stock options is recognised on the contract date, i.e. the date on which an option is written. Potential loss, if any, between premiums contracted and as prevailing at the year-end are provided.

(4)  Expenses are accounted on accrual basis.

1.3              Non-performing Assets and provisioning thereagainst

An asset is regarded as non-performing if interest and / or principal amount have not been received or remained outstanding for one quarter from the day such income / installment has fallen due. Income on non-performing assets is recognised on cash basis and accrued outstanding income is reversed. Provision is also created against the principal amount, in accordance with related SEBI guidelines.

1.4       Investment Management & Advisory Fees

            In accordance with the Investment Management Agreement, investment management and advisory fees payable to Escorts Asset Management Limited is chargeable at a rate of 1.25% of the daily average net assets of the Scheme.

1.5       Equalisation Account

            Upon sale and/or repurchase of units, an amount equal to the distributable income per unit is taken to Equalisation Account; at the year end, the balance in such Equalisation Account is transferred to Revenue Account. The treatment does not, however, impact the net income of the Fund.

1.6       Dividend

            Provision for dividend is based on the number of units issued or outstanding under the Dividend Option of the Scheme as on the relevant record dates during the year.

1.7      Derivatives Transactions

NAV is adjusted by mark to market on daily basis for adverse difference between the strike price and market price of securities in respect of un-expired equity stock option written by the Fund. Any loss arising on exercise of option is recorded upon incurrence. Futures are valued by marking the underlying stock on daily basis. Premium earned on stock options is recorded on the contract date.

2.         NOTES ON ACCOUNTS

2.1              Computation of Distributable Income:

2.2              Movement in Unit Capital:

2.3              Premium earned on Equity Stock Options is recognised on contract date instead of maturity date of the contract as is prescribed in the related Guidance Note issued by Institute of Chartered Accountants of India. The impact of such early recognition, on the results for the year, is not material.

2.4              Transactions in Equity Stock Options are mainly by way of writing calls against existing investments in equity shares. There are no uncovered calls outstanding at the year end.

2.5              The aggregate value of purchases (excluding call money and derivatives’ transactions) during the year amounted to Rs.78,725,923 /- (Rs. 143,603,499/-), i.e. 179.47% (256.89%) of average daily net assets and the aggregate of sales (excluding call money and derivatives’ transactions) during the year amounted to Rs.79,386,767/- (Rs. 153,499,921/-), i.e. 180.97% (274.60%) of average daily net assets.

2.6              Associate Companies of Asset Management Company:

(a)    The Scheme has paid brokerage of Rs. 36,171/- (Rs. 67,299/-) to Escorts Securities Ltd. on purchase and sale of securities.

(b)   A sum of Rs. 27414/- (Rs. 3,322/-) has been paid to Escorts Securities Ltd and Rs. 4663/- (Rs. 661/-) has been paid to Escorts Finance Ltd. as brokerage towards the sale of units of the schemes during the period.

2.7              Asset Management Company is satisfied that the Custodian of the Scheme, HDFC Bank Limited is maintaining the stock of assets of the Scheme in good order. Necessary confirmations have been received from HDFC Bank Limited at the year end, in this regard.

2.8              No provision for taxation has been made as the Mutual Fund is registered with Securities and Exchange Board of India and therefore, its income is exempt from Income Tax under Section 10(23D)(i) of the Income-tax Act, 1961.

2.9              Computation of Management Fees:      

2.11          Other Receivables and Payables include Rs. NIL (Rs. NIL) and Rs.NIL (Rs. 1783/- ) respectively towards inter-scheme dues.   

2.12          There are outstanding contracts at the year end towards equity stock Options and Futures amounting to Rs.6,327,825/- ( NIL ) and Rs. 294,811 (Rs. 2,417,420) as per Annexure – 1 and Annexure - 2

2.13          The total income and expenditure (including change in unrealised depreciation in the value of investments) are 38.61% (40.98%) and 11.66 % (6.70%) respectively of the daily average net assets.

2.14          Figures of the previous year have been regrouped/rearranged wherever considered necessary to make them comparable with current year figures.

2.15          Figures shown in the brackets in the Notes to the Accounts, relate to the   previous year.

for Escorts Mutual Fund                                     for Escorts Asset Management Limited

(Trustee: Escorts Investments Trust Limited)

(RAJAN NANDA)                                                                       

CHAIRMAN                                                                     DIRECTOR

DIRECTOR                                                                       DIRECTOR

(K.K. MITAL)

        FUND MANAGER

Per our report of even date

For S.N. DHAWAN & Co.

Chartered Accountants

(SURESH SETH)

 PARTNER

MEMBER SHIP NO -  12565

 PLACE: NEW DELHI

 DATE: 05^th September, 2007

ANNEXURE  - 1