Fund inflow and withdrawal

[realbg]

Hello, I have two questions related to fund inflow and withdrawal.

For example,
- Jan 1, 2010: I had total $1,000,000 in my portfolio, of which $800,000 invested in stocks and $200,000 kept as cash.
- Jan 10, 2010: a client redeamed $100,000. I gave money from cash.
- Jan 20, 2010: a client deposited $150,000. I deposited the cash but did not invest.
- Jan 31, 2010: The $800,000 stock investment grew to $840,000. I had $250,000 ($200,000 - $100,000 + $150,000) in cash.

1) What is the best way to book deposit and withdrawal? Should I book $200,000 as "Purchase" and $500,000 as "Redemption"?

2) How does the return report adjust for the fund withdrawal and inflow? The return I had for one month was $40,000 or 4% of the fund I had at the begining of the month. However, the total amount of fund I had fluctuated during the month. I would like to know how to software calculates return adjusted for fund flow.

Thank you.
Aileen

[Mark]

Hi Aileen,

1) When you deposit or withdraw money, record a buy or sell in your cash account. Keep the price always fixed at 1, and the shares equal to the value for each transaction. Example, on Jan 10, record a sell of 100,000 shares at a price of $1, for a value of $100,000. On Jan 20, record a buy of 150,000 shares, price of $1, and value of $150,000.

2) There are 2 types of returns: ROI and TWR. Both are time weighted. ROI is also "money" weighted, so the performance during periods where you have more money invested is weighed more heavily. For an explanation and comparison of these two types of yields, please read:

http://www.fundmanagersoftware.com/help/yields.html