Redemption Pay-out Automation

Posted under case studies on April 27 , 2020 by Nikita Prashar


Definition

Redemption describes the repayment of any money market fixed-income security at or before the asset's maturity date. Investors can make redemptions by selling part or all their investments such as shares, bonds, or mutual funds. Redemption Process basically involves validation checks for all the redemption requests received at the client's end [say AMC, which stands for Asset Management Companies like Mutual Fund]. These redemption requests can come from multiple banks as these redemption request by different investors is processed using various bank portals.


Scope of the Problem

SheetKraft team was reached out for automating the Redemption Process. The process is defined as below-

  1. An investor sends request for redemption to AMC via CAMS
  2. CAMS gathers all requests received and creates a file. This file is sent to AMC.
  3. This file is forwarded to the respective banks for carrying out the redemption payouts to the investors.
  4. Bank validates the request and adds remarks for each of the transaction whether it has been processed or rejected, this file is called Reverse Feed File. Bank sends this reverse feed file to the AMC.
  5. The rejected transactions are re-processed by the CAMS.
  6. The cycle goes back to step 2 and continues till the transaction is processed. SheetKraft helps in performing the reconciliation at transaction level. It saves the transaction level records at a data repository, which is later used for the reconciliation process. This data repository is also used for the trend analysis which helped in analysing the bank’s business.

Manual Process

For reconciliation, the overall transaction amount of the day is reconciled. It makes it difficult to trace the failed transactions. The impact of error in these reports would affect the overall accuracy of the process. For instance, a total of 1000 pay-out requests were received by CAMS. Out of which 900 were processed and 100 were rejected. CAMS processes these 100 requests on the next day. This process is repeated for a rejected transaction till it gets processed until 14 days from first day of request. When CAMS receives the redemption request from its investor, investor could have selected any of the methods for redemption. Redemption requests can be received in different ways from different banks. Say Request A, received from Bank X could be RTGS, where as Request B from Bank Y could be sent using the Bank Transfer option.

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What exactly is Redemption Process?

Redem ption process involves validation of the requests received in the Redemption Report, as mentioned earlier these requests can be redeemed using different methods. Transaction is initiated by CAMS after receiving the redemption request from investor/investors. CAMS sends this file to the AMC and in response AMC replies with reverse feedback file. SheetKraft reconciles both of these files at transaction level.

  1. SheetKraft will check if the report from CAMS to AMC and AMC to CAMS has same transaction list
  2. SheetKraft will check if the amount of the transaction matches in both the reports, if not will highlight it
  3. Next SheetKraft will analyse if transaction is rejected or processed, and save this information

What happens when a request is Rejected?

There are several reasons for the request getting rejected, let me explain you with the help of an example If a redemption request was rejected because say IFSC code was stated incorrectly then CAMS will reprocess the redemption request and reorder for the same request within 14 days [from the first request date]


What happens to these rejected trades?

For rejected trades which are tagged as REJECT, CAMS will reprocess rejected transactions , which is tagged as Redemption Pay-out. This transaction list is again checked for rejected or processed trades. Their pay-out mechanism is validated to understand the request is coming from which bank and using which method and the report is saved in the data repository CAMS will get the rejected list and then Cams will re-process the rejected transactions again. AMC will generate processed and rejected list. The rejected list is then checked with the redemption Payout file. SheetKraft also maintains the record of which method was used to redeem in the first and last [successful] attempt for a transaction.


Impact

  • The manual process took around 4 man-days, with SheetKraft it is completed within 20 Minutes.
  • The discrepancy/missing transactions between the CAMS report and the reverse feed file report are generated.
  • Sheetkraft reduces the workflow for providing support to the clients who are redeeming. Earlier, there would be multiple requests from clients coming at different instances, which makes the AMC to contact CAMS throughout the day to get updates on the status. After SheetKraft's implementation, we are storing the status that has been received from reverse feedback file which is coming from banks for all the redemptions. This let's the user(AMC) to access through the required data and report the same within minutes with reduced intervention with CAMS.


TAGGED:RedemptionCAMSMutual Funds


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