10. Cash Management Account
Cash Management Account is a money-market fund (in a portfolio of
funds) that is used for recovering ongoing fees and annuity payments
related to the funds in the portfolio. When the CMA is used for ongoing
fee payments, it is called as an Expense Management Account (EPA) and
for Annuity as an Income Management Account (IMA). The system calculates
the ongoing fees as well as the annuity payments for a period of one
year.
This chapter contains the following sections:
10.1 Cash Management Account
This section contains the following topics:
10.1.1 Cash Management Account Description
The following constitute the balance in a CMA:
- The market value of the CMA fund
- The Income Distributions of the CMA fund
- Proportionate investments from other funds which form part of the
portfolio at the time of initial investment, for the projected ongoing
fees
- Proportionate investments from other funds during top-ups when the
balance in the CMA is insufficient to meet the projected ongoing fees
for the transaction
- Proportionate switches from other funds when the balance in the CMA
is insufficient for a forthcoming annuities or fees.
The projected ongoing fees are calculated on the basis of the loads
and load levels specified in the Product Load Maintenance and invested
in the CMA.The investment into the CMA becomes available for recovery
of fees only during top-up investments and not at the time of initial
investment (since the CMA fund becomes operational only after the initial
investment).
You need to keep in mind the following for loads for CMA:
- Typically, the distribution fees (like admin and broker fees) are
maintained as Level 1 loads and first deducted from the investment. The
UT fee, maintained as Level 2, is applied only on the net amount.
- You should map two product level loads which are the exact copy of
the load mapped as part of the product-periodic load mapping for ongoing
admin and broker fees. Both fees should be defined as Level 1 loads.
- The load mapped above enables the system to project the ongoing fees
for the year, deduct the same proportionately from the investment and
invest it in the CMA. This ensures that the balance in the CMA fully
meets the ongoing fees requirement.
- You can choose whether or not loads should be applicable for transactions
in the Cash Management Account fund. If you choose not to maintain any,
you need to have criteria based loads to indicate to the system that
the CMA should be excluded from ongoing and initial fee calculations
(for both admin and broker fee).
- The loads for a CMA transaction will be ROA applicable and be chosen
on the basis of the value of the transaction (in case of an initial investment)
or on the basis of the market value of an investor (in case of an existing
investor doing a top-up)
- The system will not consider VAT for a Unit holder for CMA type of
loads.
- The system considers all policies on which the ongoing fees have
been calculated as part of allocations on a certain date.
10.1.2 CMA Operations
The various operations in a CMA are as follows:
- When an initial investment in a policy takes place, the ongoing fees
for the investment are calculated as part of the allocation process.
These are deducted proportionately from the investment made for each
fund and invested into the CMA.
- When a top-up transaction in a policy takes place, the system calculates
the projected ongoing fee payable for a year and compares this with the
balance in the CMA Fund. If the projected fee is greater than the CMA
fund value, the difference is deducted from the investment proportionately.
- The system does this by overriding the ongoing fee record with the
updated return value. The updated return value is calculated as follows:
- Updated Return Value = ((Projected Amount – CMA fund market
value)/Projected amount)*Original Return Value.
- The system carries out monthly checks for sufficient funds in the
CMA to cover the ongoing fee for a full year. In case of a deficit, the
system proportionately switches the deficit amount from other funds into
the CMA.
- The system also carries out monthly checks for sufficient funds in
the CMA to cover the annuity for a full year. In case of a deficit, the
system proportionately switches the deficit from other funds into the
CMA.
Let us consider the following examples:
The fee set-up in an AMC is defined below:
Rate L4 – Ongoing Admin Fee per annum
Slab (in ZAR)
|
Rate (in %)
|
0 -100,000
|
0.5
|
100,000 – 500,000
|
0.25
|
L5 – Ongoing Broker Fee per annum
Slab (in ZAR)
|
Rate (in %)
|
0 -100,000
|
0.5
|
100,000 – 500,000
|
0.25
|
L1 – Initial Admin Fee
Slab (in ZAR)
|
Rate (in %)
|
0 -100,000
|
2.5
|
100,000 – 500,000
|
1.5
|
500,000 – 1,000,000
|
1
|
L2 – Initial Broker Fee
Slab (in ZAR)
|
Rate (in %)
|
0 -999,999,999
|
2.0
|
10.1.3 Operating CMA Generate Switch Transaction Batch
You can run this batch either on a periodic basis or manually.
If you wish to run this batch on a periodic basis during EOD, you
can do so by defining the following System Parameters.
CMA Switch Date
You can specify the date on which you would want the batch run for
the first time. For example, you may choose to run it on 2nd January.
CMA Switch Freq
You need to specify the frequency at which you would like the batch
to be run. The system uses this information to run the batch from the
second time on. For example, if you have specified a monthly frequency,
the system checks every day to see if the current date matches the date
defined by the CMA Switch Date and Freq. It then runs the batch when
the date is 2nd February.
You can execute the CMA Generate Switch txn Batch manually when ever
you choose. The manual execution is independent of the parameters you
may have specified above.
Note
During a top-up or switch transaction for a policy
having funds in different currencies, the load amounts for the individual
funds are converted to policy base currency before the CMA transaction.