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A fund redemption-cost model should capture explicit charges, market impact, stressed execution and fair treatment of investors.
A fund redemption-cost model should estimate the total cost of raising cash for a redemption, including visible transaction charges and the less visible market impact of selling assets. The result supports anti-dilution tool design, investor fairness and liquidity decisions. It is not a single spread copied across every fund.
The manager needs a method that can be explained, challenged and updated. Data limits and judgement should appear in the record rather than being hidden inside a number.
Define the purpose and fund population
State whether the model supports swing pricing, an anti-dilution levy, internal liquidity monitoring, stress testing or several uses. Record each fund and share class covered, its dealing frequency, notice period, settlement terms and available liquidity tools.
MAS revised the SFA 04-G08 liquidity-risk guidelines on 2 July 2026. The revised expectations include explicit and implicit redemption costs, including the market impact of asset sales. Use the current guideline and fund documents when designing the model.
Keep funds with different assets, investor behaviour or redemption terms separate until evidence supports aggregation. A common template can still produce fund-specific assumptions.
Identify the assets likely to be sold
Start with the portfolio’s actual liquidity policy. The manager may sell cash and highly liquid assets first, use a representative slice, preserve portfolio exposures or apply another documented sequence. The cost estimate must match that practice.
Record cash buffers, settlement receivables, borrowing limits and restrictions. Identify assets that cannot be sold quickly because of legal, operational, market or concentration constraints.
Use several redemption sizes. A small routine redemption and a large stressed outflow may require different assets and create different market effects.
Calculate explicit costs
Explicit costs can include broker commission, exchange and clearing charges, taxes, custody transaction fees, settlement costs and foreign-exchange charges. Name the source for each rate and the date it was obtained.
Distinguish fixed charges from percentage charges. A minimum ticket fee can matter more for small trades, while taxes may vary by market, instrument or investor route.
Do not include management expenses that would arise regardless of a redemption. The model should capture costs caused by the transaction, with any allocation policy clearly stated.
Estimate bid-ask spread and market impact
Bid-ask spread is observable for some assets but can be stale or indicative. Record the price source, time window, currency and whether the estimate uses half-spread or another convention.
Market impact reflects the price movement caused by executing the required sale. Consider trade size against normal market volume, order-book depth, days to liquidate, dealer capacity and recent volatility. A historical average may understate a stressed market.
Where reliable data is unavailable, use a documented proxy and a conservative range. Identify the asset class, market and reason the proxy is suitable. Set a date to replace it when better evidence becomes available.
Add foreign exchange and timing effects
A redemption in one currency may require asset sales or hedging in another. Include spread, execution charges and the liquidity effect of unwinding or resizing hedges. Avoid treating currency conversion as free because it is embedded in a quoted rate.
Settlement timing can create overdraft, borrowing or opportunity costs. Record whether assets settle after the fund must pay investors and how the manager bridges the difference.
For stressed scenarios, consider closed markets, holidays and time-zone differences. The same portfolio can have a different redemption cost on a day when a major market is unavailable.
Connect cost to the chosen liquidity tool
Define how the estimate becomes a swing factor, levy or another adjustment. State thresholds, caps, rounding, review frequency and the person authorised to override the result.
The tool should protect remaining investors without imposing an arbitrary charge on redeeming investors. Test whether the method reflects the transaction the fund is reasonably expected to make.
Check the constitution, offering document and operational capability. A sound model cannot authorise a tool that the fund documents or systems do not permit.
Challenge the fund redemption-cost model
Risk, operations, dealing, valuation and compliance should review the assumptions from their own responsibilities. Portfolio managers can explain likely sales, but independent challenge should test optimistic liquidity and execution estimates.
The MAS 2026 risk-management information paper emphasises current policies, effective governance and evidence of challenge. Retain comments, decisions and model changes rather than only the approved spreadsheet.
Compare estimated costs with realised transactions after material redemptions. Investigate differences by asset, market condition and order size.
Keep a model input register
| Input | Evidence | Review trigger |
|---|---|---|
| Sale sequence | Liquidity policy and holdings | Strategy or portfolio change |
| Explicit charges | Broker, market and custody rates | Fee change |
| Spread | Dated market observation | Volatility shift |
| Market impact | Volume model or proxy | Large redemption |
| Foreign exchange | Execution and hedge data | Currency exposure change |
| Override | Reason, approver and effect | Every use |
Operate the model through changing markets
Set routine review dates and event triggers. Triggers may include widening spreads, a closed venue, concentrated redemptions, a change in investor mix, use of a new asset or repeated model overrides.
Keep input data, code or formula version, test results, approvals and effective date together. Reproduce the result for a past dealing day without relying on live data that has since changed.
The Securities and Futures Act 2001 provides the statutory context. Formal interpretation of fund documents or regulatory duties should be coordinated with Singapore counsel with the relevant funds speciality.
The MAS liquidity-guideline implementation guide covers the wider change programme. The Singapore VCC launch-readiness guide is the pillar cornerstone.
When a fund redemption-cost model reflects actual trading conditions, the manager can explain how dilution is measured instead of defending a convenient fixed charge. The Funds and VCC hub connects the wider governance library.