This may well be a relevant topic for anyone holding a mutual fund, who potentially may receive a notification from their broker/platform stating that the asset manager of fund ABC has decided to convert share class X, into class Y of the same fund but which has a different value. By no means is this a new concept, especially since many mutual funds have a multi-class structure, and there’s a growing trend of converting mutual funds into ETFs and the possibility of some ITs becoming ETFs as well.
This topic has been previously discussed on this forum (How To Deal With Change From Y Shares To Z) where it was suggested that a conversion can be simply either treated as a sell (old investment vehicle) and buy (new investment vehicle) action, or that it’s dealt with by an inbound/outbound delivery sequence. However in mind both of those approaches don’t stack up as you still have an interest in Fund ABC but that’s now in share class X. Moreover both approaches causes PP to treat the discounted fund (share class Y) as a realized capital gain in the Performance Calculation Report and it will feature as a closed trade on the Trades view, which is inappropriate.
This issue has niggled my mind for sometime but I’ve just had a eureka moment and think I have come upon a really simple solution to this. (Consider making a backup of your XML file before conducting this since this involves deleting some transaction records):-
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Create a new security record for the fund (or ETF) you’ve been converted to. Set the historical pricing data for this to start from the date the fund conversion occurred, and ensure its currency is the same as the discounted fund.
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Make a note of the book cost of the holding in the fund that’s been discounted. Then select all ‘BUY’ and ‘SELL’ transactions relating to this and delete them, but just these transaction records - all other transaction records, such as dividend payments, should be retained.
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Using the security you created in step 1, create a new BUY transaction record, entering the units you’ve been allocated in the fund (or ETF) you’ve been converted to, the price, and importantly the book cost of the discounted fund (as mentioned in step 2). As to the date of this BUY transaction set this to the date the fund conversion occurred.
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Now, refer back to any transactions you retained earlier which at this stage will still be associated with the discounted fund - swap this over so the association is instead with the Fund (or ETF) security you created in step 1 as well.
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That’s it, all done!!
There is of course an option for you to make a note of the fund conversion in the newly created security record, or this can be done in an ‘event’ transaction
Any pointers are most welcome.