How is bond interest computed?

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How is bond interest computed?

Postby boggler » Thu Apr 04, 2013 11:24 am

If I buy a bond mutual fund today, does interest start accruing including today, or does it start tomorrow?
Last edited by boggler on Thu Apr 04, 2013 1:03 pm, edited 1 time in total.
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Re: Bond interest calculation

Postby FinancialDave » Thu Apr 04, 2013 12:23 pm

Bonds funds pay out the interest into your account on a fixed date basis -- but it is based on how many days you owned the fund during the month.

fd

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Last edited by FinancialDave on Fri Apr 05, 2013 12:02 pm, edited 1 time in total.
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Re: Bond interest calculation

Postby boggler » Thu Apr 04, 2013 12:29 pm

FinancialDave wrote:Bonds funds pay out the interest into your account on a fixed date basis -- it has nothing to do with the day you buy the fund, other than as it relates to the payout date.

fd


It is my understanding that bond funds accrue interest daily, but pay it monthly (usually). Is this not true?
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Re: Bond interest calculation

Postby fishnskiguy » Thu Apr 04, 2013 2:03 pm

boggler wrote:
FinancialDave wrote:Bonds funds pay out the interest into your account on a fixed date basis -- it has nothing to do with the day you buy the fund, other than as it relates to the payout date.

fd


It is my understanding that bond funds accrue interest daily, but pay it monthly (usually). Is this not true?


Yes. If you buy a bond fund one day before the end of the month, you will get one day's interest on the first.

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Re: Bond interest calculation

Postby boggler » Thu Apr 04, 2013 2:07 pm

fishnskiguy wrote:
boggler wrote:
FinancialDave wrote:Bonds funds pay out the interest into your account on a fixed date basis -- it has nothing to do with the day you buy the fund, other than as it relates to the payout date.

fd


It is my understanding that bond funds accrue interest daily, but pay it monthly (usually). Is this not true?


Yes. If you buy a bond fund one day before the end of the month, you will get one day's interest on the first.

Chris


Do they start counting from the trade date?
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Re: How is bond interest computed?

Postby kenyan » Thu Apr 04, 2013 2:12 pm

You get paid according to how long you held the shares. I would imagine that you do not get paid for the day you buy it, but you do get paid for the day you sell it, since mutual fund transactions occur at the end of the trading day. That's really digging into the details, though; not much practical effect.
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Re: Bond interest calculation

Postby FinancialDave » Fri Apr 05, 2013 12:16 pm

boggler wrote:
fishnskiguy wrote:
boggler wrote:
FinancialDave wrote:Bonds funds pay out the interest into your account on a fixed date basis -- but it is based on how many days you owned the fund during the month.

fd


It is my understanding that bond funds accrue interest daily, but pay it monthly (usually). Is this not true?


Yes. If you buy a bond fund one day before the end of the month, you will get one day's interest on the first.

Chris


Do they start counting from the trade date?


From empirical data it is hard to say whether the interest starts accruing from the trade date or the settlement date since in my account the settlement date is the very next day. If you think what happens in your bank account, interest usually starts accruing from the date of deposit and not necessarily the settlement date. Clearly, I am not the expert on this topic, as I don't normally do bonds, which are only basically paying out pocket change right now.

fd
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Re: How is bond interest computed?

Postby troysapp » Fri Apr 05, 2013 12:25 pm

When you buy bond fund shares the interest will begin accruing to you on the day following your purchase. A way to remember this is that the shares you receive are determined after the close of the day's trading, thus after the interest has accrued for the day.

When a particular bond is purchased, interest begins accruing on the settlement date.

Also, bond funds generally accrue daily and pay monthly.
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