Interview Question Answer of Top MNC's: Fund Accounting Basics

Understanding Fund Accounting

Basics Of Fund Accounting

When we see a job-post on any job portals or company’s career website saying they want to hire for “Fund Accounting Process”, or you go to an interview, you get to hear a word from the Human Resource (HR), that, we are hiring for “Investment Banking Fund Accounting Process”. On this juncture, the freshers get confused that, what exactly is “fund accounting”? What would be the fund accounting process? They don’t have any knowledge about this word. It is a “conundrum” for them. They may answer whatever, but we would like to help all of you, who want to make career in the fund accounting profile.

The experienced ones reading this blog post about the fund accounting for investment banking profile may have full knowledge. We would like the experienced ones to share their part of knowledge with us, to improve us, to make us much better in understanding the basics of the fund accounting. (Thanks in advance!)

We would like to go step-by-step in making you understand about the modus operandi of fund accounting. Let’s walk the talk, and not talk the talk.

A graduate/bachelor’s degree in finance is required to go on the road of fund accounting. It will be “cherry on the cake”, if you have master’s degree, as it holds very relevance in this profile.

What is fund accounting?

For a novice, the fund accounting is simply means reconciliation of the funds (whether it is debt or equity). It is a backend part of the investment banking. The fund accounting is also known as FAS (Fund Accounting Services) or FASCASH profile. It comes under the umbrella of BFSI.

What is BFSI?

Banking, Financial services and Insurance (BFSI) is an industry term for companies that provide a range of such financial products/services such as universal banks. BFSI comprises commercial banks, insurance companies, non-banking financial companies, cooperatives, pensions funds, mutual funds and other smaller financial entities.

The fund accounting can be divided in to these functions:-

Reconciliation of funds or portfolios
Cash Breaks
Interest Coupons
Hedging

The above points are discussed as below:

Reconciliation: In simpler terms, fund accounting means reconciliation of the funds (whether it is debt or equity). In professional terms, fund accounting goes for reconciliation of the mutual funds or portfolios – whether they are debt or equity – with trade settlements and updating of the margins balances (which may or may not include these margins, such as, LCH – London Clearing House, CME – Chicago Mercantile Exchange, ICE – Intercontinental Exchange), and accordingly updating the margin interest. There is also position close movement in each margin, which means buying or selling of the securities (or shares) for a specific number of lot.

The margin balances are updated according to the client’s bank statement. Numerous type of movements come into the funds, according to its nature – big sized fund, small sized fund or medium sized fund.

Cash Breaks: In simpler terms, the cash breaks are the custody movement that comes in to the fund. You will find numerous reason codes for the custody movement, which are bank loans (BL), swaps variance (SV), trade variance (TV), interest variance (IV), dividend variance (DV), futures (FV), claims, collaterals variance (CV), paydown (PV) etc.

Interest Coupons: The interest coupons are of 3 types – CME Coupons, LCH Coupons, ICE Coupons.

We already have discussed the acronym of all the above three with you. These coupons are basically related to the interest of the fund. When these are settled, they may result in positively or negatively effect on the fund’s interest.

There may be one leg or two legs for one security which consist of fixed and float.

Their time duration varies according to the market. They may come on daily, weekly, monthly, quarterly basis etc.

Hedging: The hedging word simply means “to protect your assets from any loss in the present or future”. So, in fund accounting, the hedging surely comes, as the investor wants to protect its fund from any type of loss – whether it is market loss or business loss, etc.

Every master fund which has hedging, always has its hedge fund. The hedging is done from master fund to hedge fund or vice-versa.

When you will go in a specific profile, you will get to learn many more things about it. The fund accounting is a profile in which you will learn new every day. We can provide you with the interview questions, which could be asked by the interview, who is hiring for the investment banking fund accounting.

If we see from a career-oriented perspective, then, fund accounting holds a pool of great knowledge. Now, we would like you to share your experience with us on the fund accounting profile.