Retained earnings of
Mutual funds
SNA review issue 42
UN web Problem statement
“In the 1993 SNA retained earnings of an
entity are generally treated as the income
and saving of the entity, rather than the
owner. However, exceptions are made for
life insurance companies, pension funds
and foreign direct investment companies,
where there is an imputed flow to the
policyholders, beneficiaries, and owners,
with an equal financial account flow.
UN Problem statement (cont’d)
The ESA 95 introduces an imputed transaction
for the retained earnings of the mutual funds
where income is attributed to the investors and
then reinvested in the fund. That treatment
brings about consistency with the treatment of
life insurance and pension funds which are other
types of collective investment schemes. Other
symmetries of the treatment of retained earning
have been suggested, either to expand or to
reduce the imputations. “
SNA93 and BPM5 treatment
• Interest on loans, deposits, bonds
– Accrued, as if paid out and reinvested
• Insurance and Pension funds
– Property income attributed to policy-holders
– Returned as premium/contribution
supplements if social insurance
– Or directly net equity in financial account
• But nothing about Mutual funds
IMF five options
1. The status quo as in SNA93 and BPM5
2. The ESA95 approach
– Distribute as D41 Interest, D42 Dividends
3. The modified ESA approach
– Distribute as D46 Retained earnings of
mutual funds.
IMF five options
4. Treat the retained earnings of pension
funds in the same manner as mutual
funds in SNA93 and BPM5, but leave
technical reserves of life insurance as
they are in SNA93.
5. Treat the retained earnings of life
insurance and pension funds in the same
manner as mutual funds in SNA93.
European proposal
Transactions
• Distribute Investment income of mutual
funds to owners of shares as D46
“Property income attributed to holders of
investment funds”.
• Reinvested in financial accounts as
F.5 Equity
European proposal (cont’d)
Definition of investment funds and sectoring
• Collective investment undertakings investing in
financial and non-financial assets to the extent
that their sole objective is the investment of
capital being raised from the public.
• Pension funds are excluded and also investment
funds issuing highly liquid liabilities of a
monetary nature. The latter institutions, known
as money market funds are classified in Other
depository corporations (S.122)
Justifications
• Align treatment with other forms of
collective investment.
• Best estimates of household income and
saving
• Simplest solution
Questions to AEG
1. Does the AEG agree on the principle of
recording retained earnings of
investment funds in a similar way to
income attributed to policy holders?
2. Agree to record as new D46
3. Agree definition of “investment funds”
4. Agree to separately identify funds issuing
monetary liabilities within S.122 ?