Applying interest
Whether interest must be applied or not can be set on a product.
If you intend to apply interest on a product, please see ‘The Interest Client Account on the Working Portfolio’ which explains the purpose of the Interest Client Account on the Working Portfolio as well as the process of using the Interest Client Account effectively.
When ‘Apply Interest’ is selected more options becomes available
Select the’ interest rate set’ to apply from the drop-down list
For investments, the system looks at the period between the deposit date of the money to be invested and the date on which the dealer Instruction is created to determine the period across which interest must be calculated. If the transaction involves more than one deposit, the ‘most recent’ bank entry date that has been matched would be used as the start date for interest. If a monthly contribution on a group has been matched, the deposit date on the monthly contribution would be the start date for interest.
As an example:
Amount to invest: R 500 000
Interest rate: 5%
Deposit date 21/05/2018
Dealer instruction creation date 23/05/2018
Interest period = 2 days
2*((R 500 000 x 5%)/365.25) = R 136.89
Should the ‘Invest days’ field contain a value different from 0, that value would be added to the interest period to determine the actual days across which interest must be calculated.
For the example above, should the field contain +1, the interest period would be 3 days.
If ‘Interest: only working days’ is ticked, only working dates excluding weekends and public holidays, as setup in the registered country of the Custodian, would be eligible for interest.
For Withdrawals, the system looks at the period between the transaction date of the dealer instruction and the date on which the payment batch to the investor is created to determine the period across which interest must be calculated.
As an example:
Withdrawal amount: R 100 000
Interest rate: 5%
Dealer instruction transaction date 21/05/2018
Payment batch creation date 22/05/2018
Interest period = 1 days
1*((R 100 000 x 5%)/365.25) = R 13.69
Should the ‘Withdrawal days’ field contain a value different from 0, that value would be added to the interest period to determine the actual days across which interest must be calculated.
For the example above, should the field contain -1, the interest period would be 0 days and no interest would be added to the payment to the investor.
If ‘Interest: only working days’ is ticked, only working dates excluding weekends and public holidays, as setup in the registered country of the Custodian, would be eligible for interest.
The Interest Client Account on the Working Portfolio
Following Release 201, Working Portfolios have a dedicated Interest Client Account, alongside the existing Distribution and Default Client Accounts.
How Interest Transactions Flow
- From the interest client account on the Working Portfolio, interest transactions are written to investors’ contracts and are represented as negative transactions in the Working Portfolio. This occurs automatically if ‘Apply interest’ is enabled on the product.
- When interest is earned within the bank account and this transaction is imported via Banking -> Import Bank Statements, the bank entry should be identified to the Working Portfolio’s interest client account.
- For more information on how to manually identify a bank entry, see link.
The Interest Client Account as a Reconciliation Tool
When following the process above, the interest client account on the Working Portfolio will function as a profit and loss reconciliation between interest allocated to investors and interest actually earned in the bank:
– The interest allocated to investor contracts (outflow transactions automatically written from the Working Portfolio’s Interest Client Account)
+ The interest actually earned in the bank account (inflow to the Interest Client Account when interest earned bank entry is manually identified to the Working Portfolio’s Interest Client Account).
= The net position of the Interest Client Account at any point in time reflects the reconciliation outcome
Last Updated on 1 month ago by Hayley Jerram