ESCORTS MUTUAL FUND

ESCORTS INCOME BOND

SCHEDULE FORMING PART OF 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, 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 the 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 the 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 amortization 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 Recognition:

(1)     Interest on debt instruments and service charges are recognised as income on an accrual basis. Dividend is recognised on the date the share is quoted on an ex-dividend basis.

(2)     The 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)  Premium paid on Repurchase of Units is debited to the Unit Premium Reserve.

1.3      Investment Management and Advisory Fees:

           Investment Management and Advisory Fees is payable to the Asset Management Company on the basis of weekly average net assets, as per the applicable SEBI (Mutual Funds) Regulations, 1996.

1.4        Non-performing Assets and provisioning there against:

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.

1.5              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       Movement in Unit Capital

2.2       Aggregate value of purchases (excluding call money and derivatives’ transactions) during the year amounted to Rs.35,525,666/- (Rs. 68,921,485/-) i.e.110.47 % (244.00%) of average weekly net assets. The aggregate value of sales (excluding call money and derivatives’ transactions) during the year amounted to Rs.36,748,200/-  (Rs. 74,340,179/-) i.e.  114.27 % (263.18%) of average weekly net assets.

2.3       Associate Companies of Asset Management Company:

(a)    The Scheme has paid brokerage of Rs. 25,799/- (Rs. 34,104/-) to Escorts Securities Ltd. on purchase and sale of securities.

2.4              Inter-Scheme transfers are valued as per management estimate on fair value, which is in accordance with the accounting policies and are in conformity with the investment objective of the Scheme.

2.5       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.

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

2.7  Computation of Management Fees:

2.8              Sundry Debtors includes amount due against matured corporate debt instruments Rs.32,500,000/- (Rs.32,500,000/-) considered doubtful and provided against Rs.32,500,000/- (Rs.32,500,000/-).

2.9              Other Receivables and Payables include Rs NIL (Rs NIL) & Rs. NIL (Rs. 140/-) towards inter-scheme dues respectively. 

2.10          There are outstanding contracts at the year-end towards equity stock Options and Futures amounting to Rs. 224,000 ( NIL ) and NIL ( Rs. 730,097/-).as per annexure - 1

2.11          The total income and expenditure (including change in unrealised depreciation in the value of investments) are 24.44% (23.56%) and 6.27 % (7.01%) respectively of the average weekly net assets.

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

2.13          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

As Per our report of even date                                          (K.K. MITAL)

                                                                                                    FUND MANAGER

For S.N. DHAWAN & Co.

Chartered Accountants

(SURESH SETH)

PARTNER

MEMBER SHIP NO -  10577

PLACE: NEW DELHI

DATE: 05^th September, 2007

ANNEXURE  - 1