Selling an Investment Order
Overview
There may be situations where the investors need funds or the investors are not interested in investing in specific loan contracts. In such scenarios, the investors may decide to sell their investment orders (IOs) to one or multiple investors. Once the IOs are sold, they are deactivated, and new IOs corresponding to the investment amount are created. Subsequent interest that is earned on the investment is credited to the investors owning the new IOs, based on the setting of the related parameter. If you have any fee with Time Of Charge as IO sale in fee set of the loan account, the sale transaction has some Sale Fee applied.
An investment order cannot be sold on the same date it is created.
Key Concepts
Transfer of Interest Income
Lenders have the option to transfer the interest income accrued on the IO, up to the point of sale to the new investor. This interest income is updated as Interest Posted on the new investment order. Interest income can be transferred to both partial and full investment order sales. The Interest Posted, Investment Amount, and the remaining investment fields are updated for the new IO post-sale. Similarly, a seller may include the accrued, unpaid interest amount in the sale price of the IO. The Org Parameter defines whether a service fee must be applied on this interest amount received from the buyer.
Amount calculated as a percentage of IO
The calculation method, Amount calculated as a percentage of IO purchase price excluding income transfer, enables the user to configure the sale fee, such that it is applied only on the investment order portion excluding the interest that is being transferred to the buyer. When the IO Sale transaction happens and the interest accrued portion is transferred to the buyer, it is stored in the Interest Exempted from Service Fee field. When the new investor receives an interest payment, the system refers to this field to determine on what interest amount the service fees is to be applied.
For more information on org parameter settings, see sections Defining Org Parameters and Interest Exempted from Service Fee.
The lender must set up the framework through which an investment order may be hosted for sale, and interested investors be identified. An investment order is considered as a set of shares with a specified share price.
Income To Be Collected flag
The default value of Income To Be Collected flag is false.
When an IO is sold with the value of Transfer Income as false, the system changes the value of the Income To Be Collected flag on the IO to true. It then becomes false after the interest of the sold IO is paid out to the seller investor.
When the value of Transfer Income is false, the value of Income To Be Collected becomes false after the Investor Payout job picks it up and the complete interest is paid to the investor of the sold IO.
The flag on the investor to whom the IO is sold becomes true after the whole interest amount is paid out to the seller investor.
On reversal of the last LPT, the value of the Income To Be Collected flag changes to true as the interest is not paid out.
Significance of the Income To Be Collected flag
Say, if the value of Income To Be Collected is false, then if an IO is sold with 100% sale and the value of Transfer Income is false, then any remaining interest in the IO such as IO Interest Accrued remains with the sold IO and is not paid out to the seller investor of sold IO when a borrower makes a complete payment.
However, if this flag is true, the sold IO with any interest in it is picked up by the Investor Payout job so that the interest is paid out to the seller investor of the sold IO.
Example
Consider the following scenarios:
| Scenario# | Action | Transfer Income | Result | Income To Be Collected |
|---|---|---|---|---|
| 1 | Investor 1 sells 100% of their share to Investor 2 | False | True | |
| LPT with amount such that complete IO amount is paid | False | True | ||
| Run Investor Payout job | False | Complete interest of the IO is paid to Investor 1 | False | |
| 2 | Investor 1 sells 100% of their share to Investor 2 | True | False | |
| LPT with amount such that complete IO amount is paid | True | False | ||
| Run Investor Payout job | True | Complete interest of the IO paid to Investor 2 | False | |
| 3 | Investor 1 sells 100% of their share to Investor 2 | False | False | |
| LPT with amount such that partial interest amount is paid | False | False | ||
| Run Investor Payout job | False | Partial interest paid to Investor 1 | True | |
| 4 | Investor 1 sells 50% of their share to Investor 2 | False | False | |
| LPT amount paid | False | False | ||
| Run Investor Payout job | False | Interest of partial shares paid | True |
Sell an Investment Order
Prerequisites
The following is the prerequisite to sell an investment order:
An investment booking is created.
Steps
An IO can be sold with the help of the following:
Using an API
Once the new investors and the number of shares they want to invest in are identified, the Sell Investment Order API in CL Marketplace creates the new IOs for the defined value. At the time of execution, the API validates that the investors have sufficient funds as per their IO amount. If any investor has insufficient funds, the API fails and errors are logged to identify the issue.
For information on selling an investment order with the help of the API, see Selling Investment Orders.
Using the Sale Button
With the Lithium release of CL Marketplace, you can also sell an investment order by clicking the Sale button on an Investment Order Details window.
Perform the following steps to sell an IO using the Sale button:
Click the required Investor Loan ID.
Click the Details tab.
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As shown in the following image, from the drop-down list, click Sale:
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In the Investment Order Sale section, specify the following details:
Field Action Buyer Account Specify the buyer account to whom the IO is to be sold. Number of Shares Specify the number of shares to be sold to the buyer. Price Per Share Specify the price of each share for selling an IO. The Total Amount = Price Per Share * Number of Shares to be sold. Transfer Income Select this check box if you want to transfer the interest income that was earned through the IO. Add Income in Buying Price Select this check box if you want to add the transferred income in the buying price. Click Validate, and then click Save.
Post Sale
Upon the sale of the investment order, the total investment amount of the previous investor is reduced, and the available funds are increased by the sale amount. Similarly, for the current investor (buyer), the total investments are increased by the IO value, while the available funds are reduced.