Multiple choice

Profit and loss on sale of securities of a mutual fund has to be calculated on the basis of

  1. LIFO Method

  2. average cost method

  3. FIFO method

  4. Any one of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

As per SEBI regulations, mutual funds in India must use the average cost method to calculate profits and losses on securities. FIFO and LIFO methods are not permitted for mutual fund accounting. The average cost method provides a fair and consistent way to track the cost basis of investments bought at different times. This method prevents manipulation of realized gains through selective identification of shares sold.

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