10.1 Prudential Investment Guidelines Description

This topic provides information on Prudential Investment Guidelines Description.

Prudential Investment Guidelines Description

Prudential Investment guidelines define the standards for total Onshore cash of the client. PIGS Forex compliance is applicable for Initial Investment, Policy Top-Up, Policy Surrender and Switch Transactions.

For example, let us consider a product, mapped to the funds F1 and F2:

The asset allocation for fund F1 is:
  • Onshore Cash - 25%
  • Onshore Equity - 40%
  • Onshore Property - 20%
  • Offshore Cash - 05%
  • Offshore Equity - 05%
  • Offshore Property - 05%
The asset allocation for fund F2 is:
  • Onshore Cash - 30%
  • Onshore Equity - 50%
  • Onshore Property - 05%
  • Offshore Cash - 10%
  • Offshore Equity - 05%
  • Offshore Property - 0%

Assuming that an investor chooses to invest in the product, with an initial investment of 100,000 ZAR, the various components of F1 and F2 have the corresponding values:

F1
  • Onshore Cash - 25% of (150, 000 + 100, 000)= 62,500 ZAR
  • Onshore Equity - 40% of (150, 000 + 100, 000) = 100,000 ZAR
  • Onshore Property - 20% of (150, 000 + 100, 000) = 50,000 ZAR
  • Offshore Cash - 05% of (150, 000 + 100, 000) = 12,500 ZAR
  • Offshore Equity - 05% of (150, 000 + 100, 000) = 12,500 ZAR
  • Offshore Property - 05% of (150, 000 + 100, 000) = 12,500 ZAR
F2
  • Onshore Cash - 30% * 100, 000 = 30,000 ZAR
  • Onshore Equity - 50% * 100, 000 = 50,000 ZAR
  • Onshore Property - 05% * 100, 000 = 5,000 ZAR
  • Offshore Cash - 10% * 100, 000 = 10,000 ZAR
  • Offshore Equity - 05% * 100, 000 = 5,000 ZAR
  • Offshore Property - 0% * 100, 000 = 0 ZAR
Calculating we get;
  • Total Cash across F1 & F2 = 62,500 + 12,500 + 30,000 + 10, 000 = 115, 000 ZAR
  • Total Equity across F1 & F2 = 100,000 + 12,500 + 50, 000 + 5, 000 = 167,500 ZAR
  • Total Property across F1 & F2 = 50, 000 + 12,500 + 5, 000 + 0 = 67, 500 ZAR
Hence we can deduce the percentage allocation for each of the components to be:
  • Cash (Onshore + Offshore) = 115,000 ZAR <= 100%
  • Cash (Offshore) = 22, 500 ZAR <= 15%
  • Equity (Onshore + Offshore) = 167,500 ZAR <= 75%
  • Equity (Offshore) = 17,500 ZAR <= 15%
  • Property (Onshore + Offshore) = 67,500 ZAR <= 25%
  • Property (Offshore) = 12,500 ZAR <= 10%
  • Property + Equity = 235,000 ZAR <= 90%
  • Total Offshore (Cash + Equity + Property) = 52,500 ZAR <= 15%

The transaction can be processed as it follows the Prudential Investment Guidelines. The Prudential investment guidelines screen provides you with ability to define rules for allocation of a fund asset.

Maintain Prudential Investment Guidelines

The rules for maintaining the Prudential Investment guidelines are validated in the following manner:
  • Total the Amount invested in selected components for the rule.
  • Calculation of threshold amount using the following formula:

    Threshold Amount = Threshold percentage * total investment value across Funds

  • Ascertain if the amount derived in the first step is less than or equal to the Threshold Amount calculated in the succeeding step.

Repeat this process for all the rules defined in Product maintenance for Prudential Investment Guidelines.

If any of the threshold amount limits violate the maintained guidelines, then the system displays an error along with the erring rule ID and the amount corresponding to the rule identity number. In this instance this particular investment transaction should not be processed.

Parent topic: Prudential Investment Guidelines