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## 3.4 Interest Allocation Methods

This topic describes the information about the Interest Allocation methods.

The interest calculated for notional pooling must be distributed to the participant accounts. The different Interest Allocation models supported by the system are as follows:

Central Distribution Model

In this method, the interest \ advantage interest arrived is credited to one central account which can be one of the participant accounts or any other account.

Even Distribution Model

In this method, the interest \ advantage arrived is evenly distributed amongst the participant accounts.

Even Direct Distribution Model

In this method, the interest reward is evenly spread across all accounts with positive balances.

Percentage Distribution Model

In this method, the pre-defined percentage of the interest \ advantage arrived is distributed amongst the participant accounts.

Fair Share Model

In this method, if the net pool position is positive, the interest/advantage interest arrived is distributed amongst the positive contributors in the ratio of their contribution (Both in Interest and Advantage models).

If the net pool position is negative, the interest amount is distributed amongst the negative contributors in the ratio of their contribution (Interest model).

If the net pool position is negative, the advantage interest amount is distributed amongst the negative contributors in the ratio of their contribution. For example, the interest calculated at the account level is 10% but the interest calculated at pool level is 8% taking into the consideration few positive account contributors (Advantage model).

Reverse Fair Share Model

In this method, if the net pool position is positive, the interest/advantage interest arrived is distributed amongst the negative contributors in the ratio of their contribution (Both in Interest and Advantage models).

If the net pool position is negative, the interest amount is distributed amongst the positive contributors in the ratio of their contribution (Interest model).

If the net pool position is negative, the advantage interest amount is distributed amongst the positive contributors in the ratio of their contribution (Advantage model).

Absolute Pro-Rata Model

In this method, the absolute balances of all accounts are considered and interest is shared proportionately to all accounts.

Parent topic: Notional Pooling