Include accrued distribution on a 100% withdrawal mid month on a money market
Interest on Money markets accrue on a daily basis and are usually distributed at the end of the month. Where a client does a 100% withdrawal from his/her money market during a month, he/she still receives a distribution for the days during the month where there were holdings in the money market. This results in a distribution amount on the money market where a 100% withdrawal has already been done.
This functionality prevent a distribution amount appearing on the money market at the end of the month as the accrued distribution amount will be paid out to the client on a 100% withdrawal from the money market and he/she will not receive a distribution amount at the end of the month.
Two settings are available on a Money market fund, A and B. Both settings can be used or either A or B can be used on their own.
A. If ‘Show accrued Interest’ is selected on a Money market, accrued Interest for the money market will be displayed under Accrued Interest and Fees on the Holdings Card of a client. Accrual of interest on the current holdings card and statement will only display accrual up to the last updated yield date.
Interest will be displayed per money market. Where the client might, for instance have units in the same money market in different client accounts on an contract, the money market interest will be displayed per instrument account and more than one interest line will be displayed for the same money market.
The system will use the daily yields as updated on the money market to determine the interest accrual. Where daily yields have not been updated, the last updated yield will be used to calculate accrued interest and then only display accrued interest up to the last updated yield date . It is therefore important to update daily yields regularly.
Where withholding tax is applicable to interest on a money market and is selected to be displayed on a contract, the withholding tax for the accrued interest will also be displayed on the Current Holdings card and statement to ensure a realistic Total value on the contract.
B. If ‘Payout distribution on 100% withdrawal’ is selected and ‘Should pay out accrued interest?’ on a withdrawal has been ticked, accrued interest will be paid out on a 100% withdrawal from the relevant money market fund.
Before submission of a 100% withdrawal instruction from a money market in unit or percentage, ‘Should pay out accrued interest?’ can be ticked if need be.
When a 100% withdrawal is done on a money market instrument, where ‘Payout distribution on 100% withdrawal’ has been selected and ‘Should pay out accrued interest?’ on a withdrawal has been ticked and no daily yield has been added (on or before the date the client buys into the money market), a screen message will appear on authorising a 100% withdrawal from the money market and the instruction can only be authorised when a yield has been loaded.
In addition a screen message will appear on authorising a 100% withdrawal from the money market and the instruction can only be authorised when a yield has been loaded on the day prior to the authorisation of the 100% withdrawal.
When a 100% withdrawal on a money market has been authorised, the system will create a ‘Pending distribution transaction’ on the withdrawal
NOTE: ‘Pending distribution transactions’ will always be indicated as units.
The sell amount (and subsequent dealer instruction) is then increase to include the pending distribution transaction (interest) and the amount paid out to the client includes the interest distribution amount. Where withholding tax is applicable, the amount will be deducted prior to paying the client.
No further interest will then accrue (for the relevant money market) on the client who did a 100% withdrawal from the money market.
When a normal distribution on the relevant money market is done, the pending distribution will be added to the distribution. There might be a rounding error because interest are accrued up to the authorised date of the 100% withdrawal, and the distribution will accrue interest until the instrument instruction is confirmed. This rounding difference will be written to the working portfolio.
The client will not receive a further distribution amount during this distribution as he/she already received the ‘Pending distribution’ amount. The ‘Pending distribution transaction’ will change to a ‘Interest Distribution – Money Market Fund’ transaction on the client account.
NOTE: The same principal as with a 100% withdrawal will apply to a 100% switch out of a money market, also where the 100% switch is an internal switch.
See 100% withdrawal interest for system movements
Last Updated on 1 year ago by Debra Hart