Investment Classification explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Two classification systems apply to the same portfolio — one by instrument type, one by measurement category. Schedule III does not say which sits on top, and the guidance note offers a structure that satisfies both.
Two systems of investment classification
| Schedule III — by nature | Ind AS 107 para 8 — by measurement |
|---|---|
| Equity instruments | Measured at amortised cost |
| Preference shares | Mandatorily measured at FVTPL |
| Government or trust securities | Designated at FVTPL |
| Debentures or bonds | Measured at FVOCI |
| Mutual funds | Designated at FVOCI (e.g. investments in equity instruments) |
| Partnership firms | |
| Other investments (specify nature) |
Schedule III does not specify whether investments should first be categorised by measurement or first classified by nature. Because it permits addition or substitution of line items to comply with the Act or Ind AS, the suggested grouping runs:
(i) broad categories as per Ind AS 107 — amortised cost, mandatorily FVTPL, designated FVTPL, FVOCI, designated FVOCI;
(ii) under each, the nature-based classification per Schedule III;
(iii) under each nature, grouping by relationship of bodies corporate — subsidiaries, associates, joint ventures, structured entities; and
(iv) under each grouping, names of bodies corporate and the nature and extent of investment.
The order is not mandatory. An entity may change the order of grouping — classifying first by nature and then sub-classifying into the measurement categories within each.
What is not optional is that both classifications appear. A note organised solely by instrument type omits the Ind AS 107 requirement; one organised solely by measurement category omits the Schedule III nature split.
An illustrative investment classification arrangement
- Investments at amortised cost — redeemable preference shares, redeemable debentures, redeemable bonds, government securities.
- Investments at FVOCI — equity instruments, redeemable preference shares, redeemable debentures, redeemable bonds, government securities.
- Investments at FVTPL — equity instruments, redeemable preference shares, optionally convertible preference shares, optionally convertible debentures, redeemable bonds, government securities.
The illustration assumes each instrument's terms qualify it for the category shown. Companies should carefully assess the terms and conditions specific to each investment before presenting it under an Ind AS 109 classification — the same instrument type can fall into different categories depending on its contractual cash flow characteristics and the business model.
Names of investees
Under each classification, details must be given of names of bodies corporate that are subsidiaries, associates, joint ventures or structured entities, with the nature and extent of the investment in each — the number of instruments held and their face value — and with partly-paid investments shown separately. It is advisable to state clearly whether investments are fully or partly paid.
Schedule III has done away with the requirement to give names of all other bodies corporate in which any form of investment is held — equity, preference, debentures, mutual fund units.
The Ind AS 107 para 11A overlay
That relief is subject to para 11A, which requires disclosure of which investments in equity instruments have been designated at FVOCI, along with the fair value of each at the end of the reporting period.
So over and above Schedule III, companies must disclose the names, number of equity instruments held and face value for all other bodies corporate whose equity investments are designated at FVOCI. Beyond those and beyond subsidiaries, associates, joint ventures and structured entities, additional name disclosure is optional.
Common mistakes
- Building the investment classification by nature only, omitting the Ind AS 107 categories.
- Driving investment classification from instrument type rather than from contractual terms.
- Relying on the removal of the all-investee names requirement while holding FVOCI-designated equity.
- Omitting the partly-paid split.