Investment Floutation Reserve
An investment fluctuation reserve is a fund that is set aside for changes in the value of an investment. When the value of investments falls below their book value, the difference is first adjusted against the investment fluctuation reserve. The difference is then distributed among the partners. The investment fluctuation reserve helps protect the capital of the company from sudden declines in market value.
If the investment fluctuation reserve account is equal to Rs. 20,000 and the investment market value is Rs. 35,000, then the difference is offset by the investment fluctuation reserve. This amount of money is divided between the partners X and Y. The investment fluctuation reserve is a part of the Old Partner’s Capital.
The investment fluctuation reserve is a reserve that banks set aside for unexpected market fluctuations. This reserve is funded by the realized gains on investments and the net profit earned on those investments. Urban Cooperative Banks are required to set aside this reserve as a buffer against losses. As a result, the RBI’s new guidelines will strengthen the financial position of Indian banks.
The Reserve will be required to hold adequate amounts of investment fluctuation reserve, also known as MTM, for four quarters. However, the reserve must not be less than the net profit on sale of investments in a year, less any mandatory appropriations. It should be kept at 2% of the total assets.