The document discusses using a unit valuation system for an investment club. It explains that a unit valuation system allows for more flexibility than an equal share approach by allowing members to invest different amounts each month and join or withdraw funds without requiring others to do the same. Under a unit valuation system, members purchase units based on the current unit value when they invest money. The total value of the club's assets is divided by the total number of units to determine the unit value. New units are created when members invest, and the unit value changes as the club's asset value changes. The document provides an example to illustrate how the unit valuation system works in practice, tracking a member's contributions and withdrawals over several months as the

1.  
Unit Valuation System Presentation

2.  Accounting approaches
 Equal Share - No matter how big the pie....
…All have equal share
o Can anyone think of a weakness?
o What if the slice is too much for the new
member?
o What if an existing member wants to put
more in?
 Unit Value
o Truthfully, it's not a difficult concept,
The unit value of the club is just a
representation of how the club is
doing
2

3.  If it were practical for all members of an investment club
to always remain exactly equal owners of the club, a unit
value system might not be necessary.
 However, not only is “equal ownership” over time
impractical, it’s unnecessary and even undesirable. For
example, most clubs consider it beneficial to have the
flexibility to add new members without requiring that they
invest the current market value of an existing member at
their first meeting.
 Also, partial withdrawals always result in unequal
ownership and most clubs want their members to have
that option.
3

4.  When members invest money in their club they purchase
club “units”. The number of units purchased depends on
the amount of money invested and the current unit value
(i.e., the Shilling value of one unit) on the date the
money is invested.
 When a new club is started, the unit value is set at some
arbitrary value (typically Ksh1000). The specific value
chosen for the beginning unit value is completely
unimportant. To determine unit value on any particular
date after that, the total value of all club assets is divided
by the total number of units owned by all club members.
4

5.  New units are created only when club members invest
new money in a club. All other money added to a club
(member fees, interest, dividends, etc.) increases the
unit value (without changing the number of units).
 Unit value also changes along with the fluctuating value
of securities held by a club.
 Units are removed (without changing the unit value) only
when club members withdraw or when expenses are
allocated equally among members. Unit value is reduced
(without changing the number of units) by expenses
allocated among members in proportion to their club
ownership and by money leaving a club for some other
reason (loans, for example).
5

6. Consider a club worth
£60,000 and with 6 members
Total Assets = £60,000
Member Value = £10,000
Set a starting Unit Value UV = 100shares
Q: How many units does the club
have?
Total Units = 60,000
Q: How many units does each
member have?
Member Units = 10,000
Alex wants to join and has £1000
Q: How many units can Alex buy?
Alex Units = 1,000
(UV=100shares so £1000
buys 1000 units)
The status after Alex joins: Total Assets = £61,000
UV = 100shares
Total Units = 61,000
Member Units = 10,000
Alex Units = 1,000

7. Assume assets go up 20%
Last Total = £61,000
Calculate new Unit Value New UV = Total Assets
Total Units
Total Units = 61,000
Member Units = 10,000
Calculate Member Allocations
Member Alloc.= £12,000
Alex Alloc. = £1,200
From previous
= 73200 ÷ 61000
= 120shares
(No.Units x Unit Value)
Alex Units = 1,000
New Total = £73,200

8. Let members put in £100 subs
Asset Total = £73,200
Alex puts in £200 £200 buys 166.666 units
Total Units = 61,000
Member Units = 10,000
Status at the end of the month: Units:
Alex = 1,166.666
Others =10,083.333
£100 buys units83.333
(Subs ÷ Unit Value)
Alex Units = 1,000
Unit Value = 120shrs
______?
Value:
Alex = £1,400.00
Others =£12,100.00

9. Assume assets go up 20%
Last Total = £61,000
Calculate new Unit Value New UV = Total Assets
Total Units
Total Units = 61,000
Member Units = 10,000
Calculate Member Allocations
Member Alloc.= £12,000
Alex Alloc. = £1,200
From previous
= 73200 ÷ 61000
= 120p
(No.Units x Unit Value)
Alex Units = 1,000
New Total = £73,200

10. Let members put in £100 subs
Asset Total = £73,200
Alex puts in £200 £200 buys 166.666 units
Total Units = 61,000
Member Units = 10,000
Status at the end of the month: Units:
Alex = 1,166.666
Others =10,083.333
£100 buys units83.333
(Subs ÷ Unit Value)
Alex Units = 1,000
Unit Value = 120p
______?
Value:
Alex = £1,400.00
Others =£12,100.00

11.  Consider an Investment Club with 10 member, who
normally contribute £100 in monthly subscriptions to their
Investment Club fund. We are going to focus on one
member of the club called 'Joe Bloggs'. If you take a look
at the following table it provides an overview of the club's
performance over time:
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12.  For the first 5 months, each club member contributes and
equal amount of money and as the club performance
increases and decrease, the unit value changes accordingly.
 At the start of the first month, each member contributed £100,
which is a total subscription of £1,000. The starting unit value
was set to £1 by the club members, therefore the number of
units allocated to each member was 100 (i.e. each club
members monthly subscription divided by the unit value).
 The club then invested the £1,000 and the end of the first
month made a return on investment of £250, therefore
increasing the club Net Asset Value to £1,250. At the end of
the first month the unit value has now increased because the
Net Asset Value has increased. The resulting Unit Value is
increased from £1 to £1.25 (i.e. the end of month Net Asset
Value divided by the number of allocated units = £1,250 /
1,000 = £1.25).
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13.  At the start of the second month, each of the club
members contribute a further £100 each, which
increases the Net Asset Value by £1,000.
 This time they receive less unit for their £100
contribution as the unit value has increased from £1
to £1.25.
 The number of units that they get for their monthly
subscription of £100 is 80 units, which is determined
by dividing the subscription contribution by the unit
value i.e. £100 / £1.25 = 80 units.
13

14.  In the third, fourth and fifth month each club member
continues to contribute £100 per month and the number
of units that get is based on the previous ending monthly
Unit Value.
14

15.  At the start of the sixth month, Joe Bloggs decides to
withdraw £100 from the investment club when the unit value is
£1.70. To do so he 'sells' units back to the club, who in turn
cancel the units. To withdraw £100 Joe Bloggs must sell
approximately 59 units at a price of £1.70 per unit.
 As the Net Asset Value is reduced by £100 and the number of
allocated units is reduced by 59 units due to the process of
unit cancellation, with the result being that the unit value
remains consistent at £1.70 (i.e. the ending Net Asset Value in
month 5 is reduced £100 from £6,250 to £6,150 and the
number of units are reduced by 59 due to member withdrawal
of £100 therefore reducing the total number of units from
3,670 to 3,611; the resulting unit value is then unchanged
because £6,250/3,670 units = £6,150/3,611 units = £1.70)
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16. Equal Share Approach
 Simple to implement and manage
 Complete Lack of Flexibility:
– New member joining – pay and catch up
– Can’t increase or reduce monthly subscription
• Everyone must or nobody can
– Can’t handle one-off top-ups
• Everyone must or nobody can
– Can’t handle people withdrawing some funds
• Everyone must or nobody can

17. Unit Value Approach
 Completely Flexible
– New members can join at any level
– Everyone can have different monthly sub amounts
– Can allow individuals to put extra in at any time
– Can allow individuals to take some out
 Needs a bit more maths….but
 Easy in a spreadsheet
 Most Treasurer software packages handle it (COW, TTT, etc.)
 Once done for a month or two – it’s easy.

18. Scheme Good Not good
UVS Flexible
More work
– valuation
Equal
Share
Ease of use
and maintain
Very
restrictive

19. Invested #units Valuation UV
Club A £1000 1000 £1000 100p
Club B £1000 1000 £1000 100p
Club A - 1000 £3000 300p
Club B - 1000 £333 33.3p
Club A £9000 4000 £12000 300p
Club B £9000 28027 £9333 33.3p
Club A - 4000 £6000 150p
Club B - 28027 £18666 66.6p

20. Let’s focus on investment performance,
So we
1. Invest in the club – monthly subs
2. Make investment decisions
3. Buy/sell shares (or other alternatives – Farming or rela
estate)
4. Measure performance