Certificate of Deposit (CD).

Here are its key features:

1. Fixed-Income Investment:

 CDs are fixed-income securities, meaning they offer a fixed rate of return over a
specified period.
 The investor lends money to a financial institution for a predetermined term, receiving
interest payments at maturity.

2. Maturity Period:

 CDs have a specific maturity date, ranging from a few months to several years.
 The interest rate is typically higher for longer-term CDs.

3. Fixed Interest Rate:

 The interest rate on a CD is fixed at the time of purchase and remains unchanged until
maturity.
 This offers predictability and stability to investors.

4. Safety and Security:

 CDs are generally considered low-risk investments.

 In many countries, they are insured by government agencies, such as the FDIC in the
United States, providing protection against the institution's failure.

5. Liquidity:

 While CDs are not as liquid as cash or savings accounts, they can be traded on
secondary markets, offering some flexibility.
 However, early withdrawal may incur penalties.

6. Minimum Investment:

 CDs typically have a minimum investment amount, which varies depending on the
financial institution.

7. Taxation:

 Interest earned on CDs is usually subject to income tax.

Key Points for India:

 CDs in India are issued by commercial banks and select financial institutions.
 They are issued in dematerialized form and traded on secondary markets.
 The minimum investment amount is typically Rs. 5 lakh.
 CDs offer higher returns than traditional fixed deposits and are a suitable option for
short-term investment.
It's important to note that while CDs offer a relatively safe and stable investment option, they
may not provide the same level of growth potential as other investment instruments like
stocks or mutual funds.

CMB in the US securities market can refer to two different things:

1. Cash Management Bill (CMB)

 Short-Term Security: CMBs are short-term debt securities issued by the US

Treasury Department.
 Temporary Cash Shortages: They are issued to address temporary cash shortfalls,
typically when the government's cash balance is low.
 Short Maturity: CMBs have short maturities, usually ranging from a few days to a
few months.
 Low Risk: Backed by the full faith and credit of the US government, CMBs are
considered low-risk investments.
 Institutional Investors: They are primarily targeted at institutional investors due to
their high minimum investment requirements.

2. Commercial Mortgage-Backed Security (CMBS)

 Securitized Debt: CMBS are a type of asset-backed security that is backed by a pool
of commercial real estate loans.
 Tranches: CMBS are divided into different tranches, each with varying levels of risk
and return.
 Diversification: Investing in CMBS can provide diversification benefits as it spreads
risk across multiple properties and borrowers.
 Potential for Higher Returns: CMBS can offer higher potential returns compared to
traditional fixed-income investments.
 Credit Risk: However, CMBS also carry credit risk, as the value of the underlying
real estate collateral can fluctuate.
 ------------------------------------------------------

A Credit Default Swap (CDS) Index is a benchmark index that tracks a basket of U.S. and
emerging market single-issuer credit default swaps. Here are its key features:

Key Features of CDS Index:

1. Credit Risk Exposure:

o The index provides exposure to the credit risk of a basket of companies.
o It allows investors to hedge against potential credit defaults or speculate on
credit quality.
2. Standardized Contract:
o CDS indices offer standardized contracts, making them more accessible and
liquid compared to individual CDS contracts.
o This standardization simplifies trading and reduces counterparty risk.
3. Diversification:
o By investing in a CDS index, investors can diversify their credit risk across
multiple issuers.
 o This reduces the impact of a default by a single company on the overall
investment.
4. Liquidity:
o CDS indices are more liquid than individual CDS contracts, as they are traded
on standardized exchanges.
o This liquidity allows investors to enter and exit positions more easily.
5. Transparency:
o CDS indices are transparent, with clear pricing and market data available.
o This transparency helps investors make informed decisions.
6. Leverage:
o CDS indices can be used to leverage exposure to credit risk, allowing
investors to amplify their returns or losses.
7. Hedging Tool:
o CDS indices can be used to hedge existing credit portfolios.
o By holding a short position in a CDS index, investors can offset potential
losses from a decline in credit quality.
8. Speculative Tool:
o CDS indices can also be used for speculative purposes.
o Investors can take long or short positions on the index to profit from changes
in credit spreads.

Popular CDS Indices:

 CDX: A family of indices that tracks the creditworthiness of North American and
emerging market companies.
 iTraxx: A family of indices that tracks the creditworthiness of European and Asian
companies.

It's important to note that investing in CDS indices can be complex and involves significant
risk.

-------------------------------------------------------
Latest Trends

What are the latest trends in Net Asset Value (NAV) computation ?

Show drafts

While the core principle of NAV calculation remains consistent, there are several emerging
trends influencing its computation and interpretation:

1. Real-time NAV Calculation:

 Increased Frequency: Some funds are exploring more frequent NAV calculations,
potentially even intraday, to provide investors with a more accurate and up-to-date
valuation of their holdings.
 Technological Advancements: This trend is fueled by advancements in data
processing and real-time market data feeds.
2. Incorporation of Alternative Assets:

 Complex Valuations: As funds increasingly invest in alternative assets like private

equity, real estate, and cryptocurrencies, the valuation process becomes more complex
and less standardized.
 Specialized Valuation Models: Specialized valuation models and methodologies are
being developed to accurately assess the value of these assets.

3. ESG and Impact Investing:

 ESG Factors: The growing importance of Environmental, Social, and Governance

(ESG) factors is influencing NAV calculations.
 Impact Metrics: Funds incorporating impact metrics may need to adjust their NAV
calculations to reflect the social and environmental impact of their investments.

4. Artificial Intelligence and Machine Learning:

 Enhanced Accuracy: AI and ML algorithms are being used to improve the accuracy
and efficiency of NAV calculations.
 Predictive Analytics: These tools can help predict future market trends and asset
valuations, leading to more informed NAV calculations.

5. Blockchain Technology:

 Transparent and Secure: Blockchain technology can provide a transparent and

secure way to record and track asset ownership and transactions, potentially
streamlining NAV calculations.

 Smart Contracts: Smart contracts can automate certain aspects of the NAV
calculation process, reducing errors and improving efficiency.

6. Regulatory Changes and Compliance:

 Global Standards: As regulatory frameworks evolve globally, funds need to adapt

their NAV calculation methods to comply with new standards.
 Increased Scrutiny: Regulatory scrutiny is intensifying, leading to increased focus
on the accuracy and transparency of NAV calculations.

It's important to note that while these trends are emerging, the core principles of NAV
calculation remain unchanged. However, as the investment landscape continues to evolve, we
can expect further innovations in NAV computation to meet the needs of investors and
regulators.

Sources and related content

Forecasting of Net Asset Value of Indian Mutual Funds Using Firefly Algorithm-Based
Neural Network Model | Request PDF - ResearchGate
AUTOMATING THE CALCULATION
AND REPORTING OF NAV FOR FUND
ADMINISTRATORS
Hedge Fund Administration includes functions related to the
fund’s operations including regulatory and compliance, fund
accounting, audit oversight, investor reporting, and tax
requirements. However, one of the most important functions of
the Hedge Fund Administration or more specifically Fund
Administrators themselves is the calculation of the firm’s Net
Asset Value or NAV. While critical, the vast majority of Fund
Administrators are still managing the arduous, time-consuming
task by leveraging spreadsheets to track asset prices, sign-offs,
and to-do lists prior to publishing the NAV calculation.

The calculation of the fund’s net asset value or NAV, including the
calculation of the fund’s income and expense accruals and the
pricing of securities at current market value, is an example of
core fund administrator responsibility. The reason the
responsibility is so important is that the NAV is the price at which
investors buy and sell shares in the fund.
Figure 1 – RyanEyes NAV Closing Checklist Screenshot
The responsibility involves trade capture; security valuation,
reconciliations; expense calculation; and ultimately the NAV
calculation and subsequent external and internal reporting.
Further, with the growth of side-pockets to add illiquid
investments to the portfolio, calculating NAV involves numerous,
intricate variables. This critical activity has traditionally been
fraught with manual processes, time-consuming data collection
which unfortunately has been fraught with errors.

As we suggested, the current solution to calculating NAV in many

firms is excel spreadsheets. We know that if you are in the
industry this comes as no surprise. Despite this fact, updating an
excel spreadsheet to calculate NAV as well as track all of the data
needed to make the calculation is labor-intensive and has been
described by many fund administrators as “overwhelming.” The
task is overwhelming because fund administrators must not only
calculate NAV, but also collect the data from a variety of
colleagues across the firm and likely across the globe for each
reporting period.

Make sure to check out our Monthly NAV Closing Process

Video Here: https://www.ryaneyes.com//resources/
The Growth of Side Pockets
Complicate NAV Calculations
Think about this for a real-life example, a leading Hedge Fund has
hundreds of investors with approximately 20 side pockets created
per month. For accounting, the increase in the use of side pockets
has led to an increase of up to 100,000 new capital entries per
month across the entity structure. Side pockets can have
hundreds of investors and if each investor starts a month with up
to 20 side pockets per month and 20 new side pockets are added
in a month – and, to complicate things further, there may be a
loan against each side pocket, the number of ledger entries
further explodes by the thousands each month and compounds
exponentially going forward.
Side pockets were often managed manually through spreadsheets
and updated by creating new sheets and cutting and pasting
existing formulas from the previous month’s sheet. It was a
painstaking, time-consuming task that in one account absorbed
two high-level employees for three days. However, now, with
thousands of additional entries and subsequent calculations
spreadsheets have grown to over 150MB in size, become
corrupted, and calculations have copied incorrectly or changed
over time making the valuations incorrect.

As the number of side pockets grows RyanEyes has the

ability to handle not only the automation of entries and
calculations, but also the impact they have on NAV, the
General Ledger, and Investor Returns

When a fund manager decides to create a side pocket, one

method is to allocate shares to existing shareholders in the new
side pocket account on a pro-rata basis. These shares cannot be
redeemed until either the fund manager realizes a portion or all of
the side pocket investment creating additional challenges for
accounting and fund administrators. One of the primary
advantages of side pockets outside of adding leverage is limiting
redemptions. Hedge funds can delay redemptions until side
pocket assets are assessed and given a valuation which often
doesn’t happen frequently.
Figure 2 – Screenshot of Side Pocket Module in RyanEyes

Fund Administrators are

Overwhelmed with Manual
Processes
While automation has become a key focus for many firms’ IT
requirements, Hedge Funds are struggling to adopt change
because of the rules and regulations inherent in the industry.
Automation is complex for Fund Administrators because the
predecessor to automation is systems that can log and track all
 the items that are part of the NAV calculation. A detailed tracking
and audit trail is required in the process of calculating NAV. Many
systems that Fund Administrators use are adequate at logging
what they do, but they are not good at logging what they do with
other systems. To complicate matters further, information on
some of the components of the NAV is constantly being updated,
even after the reporting period has closed. They are effectively
blind to other systems causing gaps in the audit trail thus risking
compliance issues and worse, an inaccurate NAV calculation.

Top 10 Issues to Watch Out for in Calculating NAV

according to Ted Ryan

Spreadsheet formula mistakes Asset pricing errors due to m

Investor characterization erro

Stale or old data
of fee structure

Bypassed controls are due to fragmented sign off process including maker or
Failure to double check onbo
Checker process being ignored

Inability to “Freeze” data as of certain points for a “Preliminary Close” and

Data provider failure with no
then compare preliminary with final NAV’s

Undocumented manual proce

Mapping issues of entity structure
Administrators when steps a

Many of the firms that we partner with use multiple fund

administrators and depend on them to manage NAV-related
functions, audit adjustments and trading issues. As we suggested
in the previous section, many asset management firms have
goals to increase the productivity of fund administrators and
according to PWC’s survey, they are using KPI’s like those listed
below to measure progress:

 Timeliness of the NAV Calculation

 Number of NAV Errors
 Percent of NAV Produced on Time
 Number of Audit Adjustments
 Aged Open Items
 Prior Period Corrections
 Trade Errors
 Trade Breaks

Meeting the aggressive KPIs has required fund administrators to

adopt technology and software to transition from manual, paper-
oriented processes to automated, transparent and shared
processes. Fund administrators are minimizing the touchpoints
and maximizing the use of technology across the entire business
design.

 For example, the funds are also leveraging fund administrators to

handle many of the middle office functions including:Bank/Broker
Reconciliations
 Price Verification
 Corporate Actions Processing
 Portfolio Accounting
 P&L Reporting
 Trade Processing
 Cash Management/Treasury
 Performance Measurement & Attribution
 Trade Compliance
 Risk Attribution

Automating the NAV

Calculation will Improve Fund
Compliance
Having automated systems allow Fund Administrators to track
items that are critical to regulatory compliance. For example, let’s
consider SOC II compliance. A rigorous audit trail will allow you to
ensure there is sufficient backup and detail to the regulator’s
demands for seeing how items were actually signed off.

Automation can also cue the manual review processes, alerting

the appropriate folks that an item requires a signature. The
technology will also keep track of when these sign-offs are
completed. Using automation systems like this can not only bring
consistency to a firm’s compliance processes but also alleviate
some of the time pressures for compliance personnel.
As technology, automation, and transparent processes are
centered around management and workflow, automating
standard processes allows the fund administrator to minimize
workflow friction and improve job throughput. Fund administrators
are in effect empowered to focus their attention on asset and
portfolio managers as well as on more complex scenarios within
the firm. They can essentially transition to the role of a business
partner and add value at the customer and service level.

Conclusion
Improving productivity through a collaborative, automated
process that collects, tracks, proactively notifies colleagues
including CFO’s and Chief Controllers, and ultimately accurately
calculates the firm’s NAV is critical. As fund administrators
become more skilled, specialized, and take on additional
responsibilities across the middle and back office, automation,
transparency, and collaboration tools are vital to increasing
productivity. Software solutions that provide a single-pane-of-
glass capability along with the ability to reduce the time required
to generate NAV calculations and close the month in a
streamlined manner will provide a competitive advantage for the
firm.

There’s still a lot of misconceptions out there with people often

just looking for a “push button” solution. This is not something
that happens by accident and improving automation should be
regarded as a continuous process rather than a one-time event. It
is all about incremental improvements over a period of time.
Automation should be set as a priority now that technology and
solutions are available and easily implemented. Fund
Administrator productivity enhancements directly lead to more
efficient and effective fund management and in turn better
performance and investor engagement.

To Learn More About Automating Fund Administration

Tasks – Contact Us, We Are Happy to Help – 1 (833) 352-
7111.
You Can Also Fill Out Our Contact Us Form Here to Talk
with a RyanEyes Consultant
– https://www.ryaneyes.com//contact-us/