The Difference Between Custodial And Investment Accounting
Management of the finances of a business that has made certain investments in various types of securities and instruments is called investment accounting. Management of finances by an adult on behalf of a minor is termed as custodial accounting. Both of these are specialized areas of the field and are not usually performed by your regular accountant. Investors are often encouraged to engage professional bookkeeping and accounting services in Singapore to manage these accounts.
Making informed financial decisions is not an easy task. When it comes to investing at the right time in the right investments, the decision making is very difficult. There are always high levels of risks involved with big players of the investment market tracking your every move. Investment accounting involves not only record keeping, but also making strategies for future transactions related to the investments held and any opportunities that may appear in the market. Many people would hire specialists for the very task of managing their investment portfolios and ensuring legal compliance.
A parent or a guardian may choose to give a sum to a child. However, to ensure proper usage of the funds, they may deposit it in a custodial account instead of a normal bank account. When funds are in a custodial account, the owner of the funds (the child) will not be able to spend the money on his own freewill but will need the permission of the custodian (the parent or guardian). In some cases, such accounts may be made circumstantially, such as at the death of a parent.
While it may seem that both the accounting categories stated are very much different, there are some similarities between the two. The biggest one is that financial securities and instruments are involved in both of them. The funds deposited by parents would normally be in a mutual funds company or an interest-bearing bank account. Hence, the main objective of both of these is to earn income or return on the principal amount. The second similarity is that, in both, the funds are managed by someone other than the principal beneficiary (the owner of the funds). In Investment accounting it is the investment manager while in custodial accounting it is the custodian.
The major difference in the two lies in the fact that investment accounting is practiced by businesses whereas custodian accounting is practiced by individuals or families. The former is for gain of returns to promote business activities while the latter is to help the child gain funds while still being under supervision. Both of these are governed under different set of rules, having completely different requirements and legal responsibilities for the beneficiary. The types of instruments available are also different, with a very short variety being available in custodial accounting when compared to investment accounting. Similarly, custodians are hired either by the customer himself or any financial institution to take care of person’s accounts and property. On the other hand, an investment manager is hired by the directors of the company to safeguard their investment funds. Where custodial accountant manages the financial transactions and paperwork of customer’s accounts, investment managers are involved in developing financial assets within an investment portfolio.