Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

In this Discussion

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.

    Support MFO

  • Donate through PayPal

Question - If you close out a fund paying quarterly interest few days before end of quarter?

edited March 28 in Fund Discussions
(A ) You’re an idiot

(B) The interest will be added to your core account sometime after the pay date

(C) You loose out

(D) Some of the above

(E) None of the above


If it helps any, the fund I just sold today at Fido is RPGAX

Comments

  • My impression with bond funds is you still get a portion of the interest based on how many days you held it during the quarter, although this would not be true with a stock paying dividends.
  • edited March 28

    My impression with bond funds is you still get a portion of the interest based on how many days you held it during the quarter, although this would not be true with a stock paying dividends.

    Thank you. I agree as far as that goes. At a fund house I’m pretty sure they compute the accrued interest (early) and add it to the sale proceeds.

    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.

  • It is tricky but there is a system to it.

    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
  • edited March 28

    My impression with bond funds is you still get a portion of the interest based on how many days you held it during the quarter, although this would not be true with a stock paying dividends.

    That's true for daily accrual bond funds, which is how most OEFs do it. Some OEFs and all ETFs use the "NAV-flow" ** method of figuring and paying the whole distribution around record, ex-div, and pay dates -- no matter how much of the month you owned the fund, like stock dividends. If you own it when the distribution takes place, you get the full distribution. If you don't, you don't get any of it.

    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.
  • edited March 28

    It is tricky but there is a system to it.

    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


    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.

  • AndyJ said:

    My impression with bond funds is you still get a portion of the interest based on how many days you held it during the quarter, although this would not be true with a stock paying dividends.

    That's true for daily accrual bond funds, which is how most OEFs do it. Some OEFs and all ETFs use the "NAV-flow" ** method of figuring and paying the whole distribution around record, ex-div, and pay dates -- no matter how much of the month you owned the fund, like stock dividends. If you own it when the distribution takes place, you get the full distribution. If you don't, you don't get any of it.

    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.
    AndyJ,

    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?

    Mona



  • You will get partial month interest at sale or at end of month. If you sell all, it is important to choose the option SELL ALL; otherwise a tiny residual dividend may show up in otherwise empty a/c at the monthend.
  • Hank I think the answer is B . Fidelity should process the transaction smoothly for you !
  • If it helps any, the fund I just sold today at Fido is RPGAX
    Actually it confuses matters, as the subject asks about funds paying quarterly divs, and RPGAX pays divs annually.
    https://www.troweprice.com/personal-investing/tools/fund-research/RPGAX?WTAFeaturedResult=RPGAX#content-prices-distributions

    For any particular fund, just RTFM.
    From the fine manual (prospectus) for RPGAX:
    Any dividends or capital gains are declared and paid annually, usually in December.
    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.
  • "For any particular fund, just RTFM."

    Also an old saying in electronics work... "When all else fails, RTFM". :)
  • Thanks for helping lift the fog @msf. Very clear.
  • edited March 28
    Mona: "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?"

    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.
  • edited March 28
    Delete.

Sign In or Register to comment.