Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Donate through PayPal
Question - If you close out a fund paying quarterly interest few days before end of quarter?
At a brokerage, due to settlement time, it must work differently. I did change the dividend option from “reinvest” to “deposit in core account” thinking it might help.
Most bond funds accrue dividends daily but pay them monthly. If one sells mid-month, then one gets proportional dividends. NAV is not impacted by distribution.
Some bond funds and most equity/hybrid funds that pay quarterly/ semiannually/ annually flow dividends through the NAVs. Then, on the ex-div date, price drops by the dividend amount. Only the owners on the record-date get the dividends. In particular; those who buy on/after the ex-div date, and those who sell too early, don't get dividends. There is no proportional treatment. That may seem unfair, but that is the system.
Tax liability has similar consideration. So the general advice about not buying just before big distributions
Leaving aside that in the latter case, the distribution is more a tax event than an investment gain event ...
** Hat tip to Yogi for coining the "NAV-flow" term back in Morningstar chat days.
If total distribution (income + cap gains) is done by the “donut” method, than I haven’t adversely impacted net proceeds / end amount. Sounds fair enough. ISTM TRP has always paid income out for RPGAX thru the more conventional method, however quarterly. I may be mistaken
Appreciate all the thoughts.
Nice to see you posting!
I understand that if you sell an OEF bond fund mid-month that accrues dividends daily and pays monthly, you will get interest for that month up to the date you sold the fund.
But assume that the OEF bond fund accrues and pays monthly. You seem clear that if sold mid-month that you don't any of the interest for that month. Where does the interest go?
Actually it confuses matters, as the subject asks about funds paying quarterly divs, and RPGAX pays divs annually.
For any particular fund, just RTFM.
From the fine manual (prospectus) for RPGAX: But assume that the OEF bond fund accrues and pays monthly. You seem clear that if sold mid-month that you don't any of the interest for that month. Where does the interest go?
An example of such a fund is LSBDX. From its prospectus: "Generally each fund declares and pays dividends monthly."
This is no different from a fund that pays quarterly or annually or on any other schedule. When a fund gets cash from equity dividends or bond interest payments, that cash becomes part of the underlying portfolio. Its value is reflected in the NAV of the fund shares, unless the fund declares (accrues) daily divs.
The manager may choose to invest the cash, one hopes so. But it doesn't matter in terms of benefiting from stock divs and bond interest in the fund's portfolio.
Also an old saying in electronics work... "When all else fails, RTFM".
Hey @Mona, it was in the NAV until the ex-date, and if you sold early, you got at least some of it - but in the form of a capital gain.