Investment club software
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Investment Club Accounting Software is typically used to manage:
- Member Subscriptions
- Ownership / Unit Valuation System
- Investment Transactions
- Portfolio performance
- Income / Expenditure transactions
- Performance reports
- Manage tax returns
Contents |
[edit] Member Subscriptions
Investment Clubs are groups of people who meet up on a regular basis to make investment decisions, which are typically associated with stock market investments. On a periodical basis investment club members contribute to an investment fund, typically via monthly 'subscriptions'. Investment club accounting software provides a means of tracking and managing monthly subscriptions made by each club member.
[edit] Ownership / Unit Valuation System
Investment clubs tend to use one of two 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
An alternative to using a simple equal ownership scheme is a Unit Valuation System (UVS). The primary benefit of using a Unit Valuation System is flexibility to make varying subscriptions or withdrawals at any point in time and it addresses the short comings of the equal share ownership scheme.
Investment Club accounting software should provide a means of managing either an equal share ownership scheme or a Unit Valuation System.
[edit] Investment Transactions
Typically in an investment club has between 10 and 20 members. Only the club treasurer or a limited number of club traders will actively manage the club investments. A solution is therefore required to enable all club members have visibility of the investment club transactions, without for example any potential issues with club members having to log on to the investment club's brokerage account.
[edit] Portfolio Performance
After the club traders or Treasurer have made investments transactions, club members like to be able to review the investment performance. Investment Club accounting software should provide clubs with the flexibility to value investments based on bid, ask, mid or last trade price.
[edit] Income / Expenditure transactions
Investment clubs typically generate expenditures over an above normal brokerage charges. For example an investment club may rent a room for club meetings, or use profits/subscriptions to pay for a meal for club members. If a club is using a Unit Valuation System to track performance, typically non-tax deductible or non-investment related expenses are excluded from the Unit Value calculations through a process referred to as Unit Cancellation.
[edit] Performance reports
Within an investment club, Unit Valuation is one of the most common means of evaluating an investment club's performance, therefore it is useful if this performance can be charted over time. It should be noted that Unit Value should not be used as an effective means of comparing investment performance for two or more clubs; Click here for an example of why the Unit Valuation should not be used to compare the performance of investment clubs.
Internal Rate of Return (IRR) calculations are more effective for illustrating long term return on investments, however they are not effective when it comes to the allocating investment club ownership and associated profits and losses on a day to day basis.
[edit] Manage tax returns
In the UK, investment clubs have to generate an Inland Revenue tax return called Form 185(New). Form 185(New) provides a statement of a club member's share of gains for the years and indicates each investment sold, the time at which it was acquired and the date each member joined the club. The allocation of gains in the UK is typically based on allocation of units that are calculated using the Unit Valuation System.
