How to comply with Companies Act for corporate mutual fund investments
Companies Act compliance for corporate mutual fund investments is governed primarily by Sections 186 (limits on investments / loans), 187 (Register of Investments), and 188 (related-party transactions). For routine corporate treasury MF investments: Board Resolution + Register of Investments suffices. For substantial cross-investment scenarios: special resolution required.
Conflict-of-interest disclosure. This guide is published by WebNotes Editorial Team for informational purposes. WebNotes has no commercial relationship with any AMC. No affiliate commission is earned. For complex corporate compliance, consult a Company Secretary / Chartered Accountant.
Step-by-step procedure
See the procedure infobox above.
Section 186 thresholds
For a company with paid-up capital + free reserves of Rs 10 crore + free reserves Rs 5 crore = Rs 15 crore:
Section 186 limit (HIGHER of):
- 60% × 15 crore = Rs 9 crore.
- 100% × Rs 5 crore = Rs 5 crore.
So: Rs 9 crore (or higher) aggregate investments allowed.
Above this: Special Resolution (75% majority).
Common corporate MF scenarios
| Scenario | Compliance |
|---|---|
| Small treasury (< Rs 50 lakh) | Board Resolution; Register of Investments |
| Mid-tier treasury (Rs 50 lakh - Rs 5 crore) | Board Resolution; Register; quarterly audit |
| Large treasury (Rs 5+ crore) | Above + monitor Section 186 limit |
| Related-party AMC investment | Section 188 disclosures + audit committee |
For most SMEs with treasury MF investments: Section 186 limit isn’t binding.
Related-party considerations (Section 188)
If MF AMC is a related party (e.g., subsidiary, group company):
- Audit Committee approval before investment.
- Disclosure in Board Report.
- May require Shareholder approval if material.
For most retail-AMC investments: no relationship; routine Section 186 framework.
Register of Investments (Section 187)
Maintained by company:
- Each investment / disposal entered.
- Within 7 days of transaction.
- Available for shareholder inspection.
- Format prescribed by Companies Act.
Audit and disclosure
| Item | Where disclosed |
|---|---|
| Investments held | Balance Sheet under “Non-current Investments” / “Current Investments” |
| Movement during year | Notes to Accounts |
| Section 186 compliance | Auditor’s report |
| Related-party transactions | Notes; CARO 2020 audit |
| Investment in MF | Specific note disclosing AMC + scheme |
MAT (Minimum Alternate Tax) considerations
For corporate MF investments:
- LTCG / STCG / IDCW added to book profits.
- MAT calculation may differ from normal tax.
- 15% MAT rate on book profits (plus surcharge / cess).
- Effective tax rate could be MAT, not normal slab.
For companies with substantial MF gains: MAT advisory.
Pre-investment checklist
- Check authorised capital + free reserves figures.
- Verify Section 186 limit.
- Confirm Board has authority via Articles.
- Pass Board Resolution.
- Verify scheme is not related-party.
- Get auditor sign-off on compliance.
- Update Register of Investments.
See also
- How to open MF corporate folio
- How to open MF HUF folio
- How to open MF LLP folio
- How to open MF trust folio
- How to open MF minor folio
- How to handle HUF tax (MF)
- How to handle trust tax (MF)
- How to transition minor to major (MF)
- How to open Zerodha corporate account
- How to report MF capital gains in ITR
- How to choose old vs new tax regime (MF)
- Companies Act 2013
- Section 186 Companies Act
- Section 187 Companies Act
- Section 188 Companies Act
- Related-party transactions
- MAT (Minimum Alternate Tax)
- Section 112A (LTCG)
- Section 50AA (debt MF taxation)
- Form MGT-14
- Mutual funds in India
- AMFI
- SEBI
External references
References
- Companies Act, 2013 - Sections 186, 187, 188.
- Income Tax Act, 1961.
- SEBI (Mutual Funds) Regulations, 1996.
- CARO 2020 (Companies Audit and Reporting Order).