Fund Flow - Definition, What is Fund Flow, Advantages of Fund Flow, and Latest News - ClearTax (2024)

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Fund Flow - Definition, What is Fund Flow, Advantages of Fund Flow, and Latest News - ClearTax? ›

Fund flow is the sum of all cash inflows/outflows from and into different financial assets. Fund flow is usually calculated on a monthly or quarterly basis; no account is taken of the output of an asset or fund. It is only the share redemptions or outflows, and share purchases or inflows.

The fund flow statement is a vital financial document in corporate accounting. It offers a comprehensive overview of a company's financial activities over a specific period. Furthermore, it is a dynamic tool for assessing a company's liquidity and financial health.

The term flow means movement and includes both inflows and outflows of resources. And the funds used in the flow statement is a current assets.

Net inflow occurs when more cash flows into, say, the mutual fund than out of it. A net inflow creates excess cash for managers to invest. Theoretically, this then creates demand for securities such as stocks and bonds. A net outflow would indicate that more cash was taken from the mutual fund than was invested in it.

Fund flow statements are used to show movement and activity related to both long-term and short-term funds by revealing: How the funds were generated (source of funds)

Advantages of a Cash Flow Statement

Since Cash Flow Statement presents the cash position of a firm at the time of making payment it directly helps to verify the liquidity position, the same is applicable for profitability. Cash Flow Statement also helps to verify the capital cash balance of businesses.

The cash flow will record a company's inflow and outflow of actual cash (cash and cash equivalents). The fund flow records the movement of cash in and out of the company. Both help provide investors and the market with a snapshot of how the company is doing on a periodic basis.

Flow of Funds (FOF) are financial accounts that trace the inflow and outflow of funds between sectors in an economy. This happens because money keeps revolving between sectors wherein the surplus from one sector is parked with another sector through financial vehicles such as loans or capital transfers.

A funds flow statement is a statement that comprises the inflows and outflows of funds. It includes the sources of funds and application of funds for the particular period. Therefore, you can analyse the reasons behind the change in a company's financial position.

A fund flow analysis is a financial document which you can create and use to analyse and understand the financial position of your business. More importantly, it sets out where funds are coming into your business and how they are being used.

How to solve a fund flow statement? ›

The Generally Accepted Accounting Principles (GAAP) basis classification divides funds into three fund categories: governmental, proprietary, and fiduciary.

There are two types of financing available to a company when it needs to raise capital: equity financing and debt financing. Debt financing involves the borrowing of money whereas equity financing involves selling a portion of equity in the company.

A Funds Flow Statement thus helps identify liquidity blockage and assists in planning an effective dividend policy. This statement also serves as a financial guide for a company. It brings out the financial issues that a concerned company could face in the near future.

What is the main difference between a fund flow statement and a balance sheet? A fund flow statement shows how cash has flowed in and out of an organization over a specific period of time. A balance sheet shows the financial position of an organization at a specific point in time.

One can conduct a basic cash flow analysis by examining the cash flow statement, determining whether there is net negative or positive cash flow, pinpointing how the outflows compare to inflows, and draw conclusions from that.

Helps maintain optimum cash balance: A cash flow statement helps in maintaining the optimum level of cash on hand. It is important for the company to determine if too much of its cash is lying idle, or if there's a shortage or excess of funds.

The main purpose of preparing a Funds Flow Statement is that it reveals clearly the important items relating to sources and applications of funds of fixed assets, long-term loans including capital.

FOF accounts are crucial components for any comprehensive analysis of capital market behaviour. They help to identify the role of financial institutions in generating income, saving, and expenditure, and the impact of economic activity on financial markets.

Funds flow statement is helpful in determining the net changes in working capital. Period It is usually prepared after six months or a year. It is usually prepared every month.