Allocating Ownership
Investment clubs tend to use one of three methods for managing the allocation of ownership, profit and loss for investments that an investment club makes.
The first method is based on simple equal ownership, whereby each investment club member contributes exactly the same amount per month on the same day.
The primary benefit of using an Equal Share Ownership percentage scheme, whereby each club member contributes an equal amount on a fixed date each month, is simplicity. The challenges with an equal share ownership scheme, are what happens if a club member:
- can not make a monthly payment
- makes a late payment
- needs to withdraw money
- wishes to increase or decrease their monthly contribution
- is new and can not afford to pay the historical monthly subscriptions that have been paid by legacy club members
The second approach is the optional allocated ownership scheme. This allows individual investments, right down to individual parcels of stock, to be assigned to one or more investors on a percentage basis. Any investments which are not assigned specific ownership splits are assumed to be pooled as they would be under Equal Share Ownership above. Systems using this approach will segregate income and expenses associated with the individual investments according to the ownership tables for a clearer. An important advantage of the Optional Allocated Ownership scheme is that it allows for the representation of the differences in contribution levels that may emerge over time.
Another approach used is the Unit Valuation System (UVS). The primary benefit of using a UVS is flexibility to make varying subscriptions or withdrawals at any point in time and it addresses the shortcomings of the equal share ownership scheme. An important challenge of such a system is that it relies upon the timely revaluation of all investments to arrive at the unit values. This introduces significant manual processing in cases where valuations are not automated, however most modern Investment Club Accountancy products provide real time automated stock market portfolio valuation therefore overcoming this challenge.
Investment club accounting software should provide a means of managing either an equal share ownership scheme, optional allocated ownership scheme or a UVS.
Read more about this topic: Investment Club Software
Famous quotes containing the word ownership:
“They had their fortunes to make, everything to gain and nothing to lose. They were schooled in and anxious for debates; forcible in argument; reckless and brilliant. For them it was but a short and natural step from swaying juries in courtroom battles over the ownership of land to swaying constituents in contests for office. For the lawyer, oratory was the escalator that could lift a political candidate to higher ground.”
—Federal Writers’ Project Of The Wor, U.S. public relief program (1935-1943)