Dividend Processing in the System

Maintain and Process Dividends

Oracle® FLEXCUBE Investor Servicing enables the maintenance of dividend for funds, as well as the computation and payment of the same.

The sequence of events that enable the maintenance of dividend is explained below, under the following sequential heads:

Maintaining the rules for dividend processing for a fund
Maintaining the rules for withholding tax for an investor category
Dividend Cycle for a fund
Generation of the dividend declaration record
Maintaining details of dividend declaration
Authorizing the dividend declaration in the system
Processing the declared dividend

Maintain Rules for Dividend Processing for Fund

In the Corporate Actions screen, you can define the rules for each type of dividend that must be processed for a fund – Cash or Stock.

If both types need to be processed for a fund, you can maintain two corporate actions profiles for each type.

To understand how you can maintain rules for dividend processing through the Corporate Actions screen, refer the topics Setting up Funds in Volume One of the Fund Setup User Manual.

Maintain Rules for Withholding Tax for Investor Category

You can maintain the withholding tax parameters applicable for an investor category and country of domicile, in the Withholding Tax Setup screen.

To understand how you can maintain rules for withholding tax processing through the Withholding Tax Setup screen, refer the topics Maintaining Reference Information in the Reference Information User Manual.

Dividend Cycle for Fund

The system reckons the dividend processing cycle for the fund (and dividend type) from the dividend declaration frequency and the dividend payment frequency specified in the Corporate Actions profile.

The system automatically updates the next date upon which a regular dividend is due for a fund. This is based on either of the following bases:

If the date of the first dividend declared for the fund (First Dividend Declare Date) is specified in the Corporate Actions profile for the dividend type. The system uses the First Dividend Declare Date and the declaration frequency specified for the fund, to update the next dividend declaration date.
If the First Dividend Declare Date is not specified, the system updates the next dividend declare date based on the Fiscal Year for the fund and the declaration frequency.

Generation of Dividend Declaration Record

The system automatically generates a dividend record for declaration during the Beginning of Day process on the next dividend date, using the dividend cycle for the fund and dividend type. If the fund is a multi distribution fund, then the system generates a dividend record for each distribution type.

When the dividend record is generated, the system also defaults the following dividend information using the specifications in the Corporate Actions profile for the fund and dividend type:

The dividend period (the dividend from and to dates). The holiday rule specified for the fund and dividend type in the Corporate Actions profile is used in case of intervening holidays.
The dividend declare date (this is reckoned to be the dividend to date).
The freeze holdings date. It is arrived at based on the dividend declare date and the Lead Time for Freeze Holdings (specified in the Corporate Actions profile), as follows:

Freeze Holdings Date = Dividend Declare Date – Freeze Holdings Lead Time

Maintain Details of Dividend Declaration

On the next date on which the dividend declaration is due, you must specify the following details for the declaration in the Fund Dividend Maintenance screen:

For cash dividends, the EPU component values, if applicable
For cash dividends, the NPI value, if the EPU is non components based
For stock dividends, the stock dividend ratio
The book closing dates for the dividend
The board of directors’ meeting date

As explained in the previous topics, the system defaults the dividend period, the dividend declare date and the freeze holdings date when it generates the dividend record. This defaulted information is displayed in the Fund Dividend Maintenance screen, but it can be overridden.

For Zero Distribution of funds, you can select the Process Type as Zero Distribution if the fund is processed for G2-G1 movement. This option is applicable for equalization funds only.

You can access the Fund Dividend by clicking on Detail under the Fund Dividend menu in the Browser.

Authorize Dividend Declaration in System

After a dividend declaration record has been maintained for the fund in the Fund Dividend Maintenance screen, it must be authorized by another user for it to be effective in the system.

After authorization, the dividend is ready to be processed.

To authorize a declared dividend, use the Fund Dividend Maintenance Summary screen. You can access this screen by clicking Summary under the Fund Dividend menu in the Browser.

Process Declared Dividend

After the declared dividend is authorized, you can begin the processing for the dividend.

The computation and payment of dividend involves the following processes in the system:

Identifying the holdings for each unit holder as on the record date, upon which the unit holder is eligible to receive dividend. This process is called the Freeze Holding Process.
For each dividend number (not yet paid), the system will take EPU and multiply the same with Freeze holding units of that dividend. For each dividend, the system will compute dividend amount and show the same in the screen. You can fetch dividend amount for all dividend numbers for the fund or specific dividend number. The system will show sum of dividend amount as a separate field in the screen.
The system will compute the accrued dividend at an adhoc basis and the accrued dividend will not get saved in the database. Therefore no processing/action should be expected from the accrued dividend amount.
Computing the dividend payable, based on the identified holdings for each unit holder. Withholding tax, wherever applicable, is also computed and deducted. The whole process is first done for non-depositary unit holders (i.e., those unit holders for whom the dealing type is not depositary. After this, the process is repeated for all depositary unit holders, based on the positions uploaded into the system in the BENPOS file. For details about depositaries, refer the topic Interfaces with Depositary Systems in the Agency Branch user manual.
Payment of dividend, and the initiation of resulting reinvestment transactions. In the case of depositary unit holders, the income distribution option defined for the fund-ISIN association will be considered. For details, refer the topic Interfaces with Depositary Systems in the Agency Branch user manual.
You can initiate the dividend processing from the Process Dividend Payment screen. You can access this screen from the Batch menu category of the Browser.

You can the reference number for the dividend payment in the Fund Dividend Payment screen, which you can access from the FCIS Process Dividend Payment screen by clicking the Payment Details button.

The Dividend Payment Date

In the Fund Dividend Payment screen, the system defaults the payment date as follows:

Dividend Payment Date = Last dividend processed date + Dividend payment frequency + Payment lag, if any.

Here, the holiday rule specified for the fund and dividend type in the Corporate Actions profile is used to arrive at the payment date.

Freeze Holdings Process

The freeze holdings process identifies the unit holders that hold units that are eligible for dividend, as on the freeze holdings date.

The manner in which the system identifies the effective freeze holdings date has been explained under the topics Generation of dividend declaration record.

In case of uncleared or blocked transactions, the uncleared and blocked transactions are tracked separately during dividend processing. The total cleared balance will be the difference between the sum of all blocked units for all block transactions and the total unit balance (excluding provisional units for uncleared transactions).

Note:

The units considered for dividend eligibility mentioned in all units for distributor should be Unit balance + provisional units + blocked units
The confirmed units for distributor should be unit balance + blocked units.

During the freeze holding process, the identification of holdings for dividend eligibility is done based on the following criteria:

Whether the installation is a distributor or an AMC installation
The specification made for the fund and dividend type in the Corporate Actions profile. Depending upon this specification, either all units or only confirmed units are considered as eligible for dividend, as follows:

Table 1-2 AMC Installation details

Installation Type	Units to be considered for freeze holdings*	Units considered for dividend eligibility
Distributor	All units	All units (Unit balance = Provisional units + blocked units) as on the effective freeze holdings date
AMC	All units	All units (Unit balance + provisional units + blocked units) as on the effective freeze holdings date
Distributor	Confirmed units	nits confirmed to the AMC as on the effective freeze holdings date
AMC	Confirmed units	All units except provisional units available as on the effective freeze holdings date. (Unit balance + blocked units as on the effective freeze holdings date)
Distributor	Units as of price date	All units (settled + provisional) with price date earlier than or on the freeze holdings date
AMC	Units as of price date	All units (settled + provisional) with price date earlier than or on the freeze holdings date
Distributor	Units as of transaction date	All units (settled + provisional) with transaction date earlier than or on the freeze holdings date
AMC	Units as of transaction date	All units (settled + provisional) with transaction date earlier than or on the freeze holdings date

“*” – as specified in the Corporate Actions profile for the fund and corporate action type.

In a distributor installation, if the units to be considered for dividend are specified as Confirmed Units in the Corporate Actions profile, only the units confirmed to the AMC as on the effective freeze holdings date are considered eligible.

This can be understood from the following example:

Let us consider a distributor, Carling Finance. For the fund Banco Italia Income Fund marketed by Carling Finance, only units of unit holders that have been confirmed to the AMC for which Carling Finance is a distributor, as on the freeze holdings date, are to be considered for dividend eligibility.

The confirmation lag that has been specified for the fund is 1 for subscription transactions, and 2 for redemption transactions.

A unit holder, Mr Alfred Werker, has entered into the following transactions in the Banco Italia Income Fund:

Table 1-3 Transaction details

Transaction Reference Number	Transaction Date	Transaction Type	Units Allocated and Confirmed	Confirmation Date
S1	2/1/2001	Subscription	1000	3/1/2001
S2	3/1/2001	Subscription	2000	4/1/2001
R1	4/1/2001	Redemption	1000	6/1/2001

Therefore, the confirmed units balance for Mr Werker would be as follows:

Unit balance on 2/1/2001 = 0 (assuming there is no brought forward balance from the previous working day)

Unit balance on 3/1/2001 = 1000 units

Unit balance on 4/1/2001 = 1000 + 2000 = 3000 units

Unit balance on 6/1/2001 = 3000 – 1000 = 2000 units

The effective freeze holdings date specified for the Banco Italia is 5th January 2001. The total unit balance on the freeze holdings date = 2000 units. Since only confirmed units are considered for dividend eligibility, the total confirmed units balance on freeze holdings date = 3000 units, since the redemption units have not been confirmed as on 5th January.

Therefore, the total number of confirmed units eligible for dividend as on the freeze holdings date = 3000 units.

Computation of dividend and withholding tax

After the units eligible for dividend have been identified, the system computes the dividend payable. During this process, any applicable withholding tax is also calculated and deducted.

Withholding tax is computed only for cash dividends, according to the rules set up for the investor category and country of domicile, in the Withholding Tax Setup record.

Withholding tax is computed in the computation currency specified in the Withholding Tax record. The prevailing exchange rate is used to convert the amount into the tax payment currency, also specified in the Withholding Tax record.

The net dividend amount after deduction of withholding tax is then arrived at by the system.

Payment of cash dividends

The Income Distribution Setup maintained for each unit holder determines the manner in which cash dividends are paid out to the unit holders.

For cash dividends that are to be paid out, the system will pay the amount to the default account of UH in the Fund Dividend Payment screen. You can access this screen from the FCIS Process Dividend Payment screen itself, by clicking the Payment Details button.

In the FCIS Process Dividend Payment screen, the system defaults the payment date as explained earlier.

If there is a lag specified for payment, then it will be deferred accordingly. The lag is interpreted as working days. For instance, if the Dividend Payment Date is 15th January 2002, and the payment is to be lagged by 2 days, then the payment will be made on 17th January, provided the intervening dates are not holidays in the system.

Reinvestment of cash dividends

For cash dividends that are to be reinvested according to the Income Distribution Setup option for the unit holders, subscription transactions by gross amount (the reinvestment amount) are initiated. The transaction date or Value Date for the reinvestment transactions is set by default to be the application date. If there is no lag specified for reinvestments in the Corporate Profile, the date of dividend payment itself will be the Value Date.

You can initiate the reinvestment transactions through the Dividend Reinvestments screen. You can access this screen from the Batch menu category in the Browser menu.

If a reinvestment lag has been specified for the fund and dividend type in the Corporate Actions profile, the initiation of the reinvestment transactions is deferred accordingly.

The End of Day processes will allocate the reinvestment transactions on the date of entry, using the prevalent price for subscriptions.

Reinvestment of stock dividends

In the case of stock dividends, the unit holder’s Income Distribution Setup options are not considered. The number of units to be reinvested is arrived at using the units eligible for dividend and the stock ratio. This computed number of units is reinvested into the same fund, as subscription transactions in units mode, with the value date being the application date. This will be the same as the dividend payment date, provided there is no reinvestment lag specified for stock dividends in the Corporate Profile.

You can initiate the reinvestment transactions through the Dividend Reinvestments screen. You can access this screen from the Batch menu category in the Browser menu.

If a reinvestment lag has been specified for the fund and dividend type in the Corporate Actions profile, the initiation of the reinvestment transactions is deferred accordingly.

The reinvestment transactions, in the case of stock dividend, are allocated online, with the price being taken as zero.

1.1 Dividend Processing in the System