Adjustments To The Segregated Fund Principal Guarantee
When a withdrawal is made from a segregated fund, the principal guarantee is adjusted using a
- linear reduction or
- proportion reduction
\begin{equation} Proceeds = Net Asset Value + Principal Guarantee Adjustment - Losses - Expenses \end{equation}
Linear Reduction Method ("dollar for dollar")
The guarantee is reduced based on the dollar amount withdrawn in relation to the original purchase price.
(2)\begin{align} NewGuarantee = [PurchasePrice - Withdrawals] \times Guarantee \; \% \end{align}
(3)
\begin{align} e.g., \; [10,000 - 1,000] \times 75 \% = 6,750 \end{align}
Proportional Reduction Method
The guarantee is reduced in proportion to the number of units redeemed in relation to the number of units at that time.
(4)\begin{align} NewGuarantee = PurchasePrice \times \left[ \frac{ CurrentMarketValue - Withdrawal}{CurrentMarketValue } \right ] \times Guarantee \; \% \end{align}
(5)
\begin{align} \; 10,000 \times \left[ \frac{ 12,000 - 1,000}{12,000 } \right ] \times 75 \% = 6,875 \end{align}
The content is meant to be accurate when written. Be sure to use your judgment and consider consulting your advisors for help with your specific situation. Please send suggestions and corrections to info@riscario.com. Better still, why don't you or your advisors volunteer to make this wiki better?
Copyright, Taxevity, 2006 - 2011
Proud to be a Nominee for a Business Excellence Award
from the Toronto Board of Trade. The category is Start-up/New Business. The reason is the innovative use of social media to build trust. You can use the same techniques too. Start painting your digital tapestry and keep going. Please?
page revision: 20, last edited: 03 Jan 2008 00:37
