Mutual fund sales and dividends payout conditions

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Topic Author
Carsson3
Posts: 11
Joined: Tue Nov 08, 2022 5:44 pm

Mutual fund sales and dividends payout conditions

Post by Carsson3 »

The questions below concern a US Gov bond fund sold mid-month, and assuming daily dividend accruals.
With Vanguard, I would receive a dividend dated on the next market day.
With Fidelity, I cannot tell what is going on.
Does Fidelity pay out the accrued dividend just as Vanguard does, except for deferring payment until the next scheduled dividend payout date?
Or does Fidelity not pay out the dividend at all in the above context because the dividend amount is in the NAV? I can see some logic for doing it this way for short-term bond fund sales because short gains are taxed like the dividends, and short losses could absorb the dividend from a tax perspective. But for long-term sales that would not work?
sycamore
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Re: Mutual fund sales and dividends payout conditions

Post by sycamore »

Carsson3 wrote: Thu Nov 24, 2022 11:13 am The questions below concern a US Gov bond fund sold mid-month, and assuming daily dividend accruals.
With Vanguard, I would receive a dividend dated on the next market day.
With Fidelity, I cannot tell what is going on.
Does Fidelity pay out the accrued dividend just as Vanguard does, except for deferring payment until the next scheduled dividend payout date?
Or does Fidelity not pay out the dividend at all in the above context because the dividend amount is in the NAV? I can see some logic for doing it this way for short-term bond fund sales because short gains are taxed like the dividends, and short losses could absorb the dividend from a tax perspective. But for long-term sales that would not work?
If the fund prospectus says it "declares dividends daily" then you're entitled to those daily dividends up to the day you sold. When you get those dividends is another question. Maybe the prospectus says something about it? One option is they just hold on to it until the end of the month. Another option is that they are in the process of making the payment to your account but it takes a business day or so to show up.

What was the fund and when did you sell it?
livesoft
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Re: Mutual fund sales and dividends payout conditions

Post by livesoft »

Carsson3 wrote: Thu Nov 24, 2022 11:13 am The questions below concern a US Gov bond fund sold mid-month, and assuming daily dividend accruals.
With Vanguard, I would receive a dividend dated on the next market day.
With Vanguard, I think this is only true if you sell ALL shares of the fund. Otherwise, the accrued dividend is still paid monthly or whenever the remaining shares pay the dividend.
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alex_686
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Re: Mutual fund sales and dividends payout conditions

Post by alex_686 »

Funds work on a accrual basis. You always get the interest depending on when you buy or sell the fund. You can’t gain the system.

I used to work in fund accounting.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Topic Author
Carsson3
Posts: 11
Joined: Tue Nov 08, 2022 5:44 pm

Re: Mutual fund sales and dividends payout conditions

Post by Carsson3 »

Replies to all, and many thanks for the responses:
I had not thought of the dividend payout appearing right after the 'mid-month' sale only if the entire position is sold, but that makes sense.
The overall question is: Is it certain that the entire accrued dividend amount as of a 'mid-month' sale date will be paid out and identified as a separate dividend line item in subsequent paperwork, whether the payout is immediate or at the next ex-dividend date, assuming daily accrual?
I think the answer is "yes", so just confirming. But why this need for reassurance?
I want to respond to Alex-686 below by trying to explain that I am not trying to game anything, but rather to not be gamed.
Why this level of skepticism?
I was thrown into a new level of general skepticism when I found out that a specific Fidelity U.S. government bond fund, FIPDX, with daily accrual and monthly payout specified in the full prospectus, has distributed zero dividend dollars YTD as of the end of October 2022. Effectively, it appears to behave as an annual dividend payout fund due to the manager's discretion, and the prospectus' wording is legally addressed by listing monthly dividends of zero dollars rounded off.
If that is legal, which it must be, I want to question everything about dividends from now on.
nalor511
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Re: Mutual fund sales and dividends payout conditions

Post by nalor511 »

Carsson3 wrote: Thu Nov 24, 2022 2:45 pm Replies to all, and many thanks for the responses:
I had not thought of the dividend payout appearing right after the 'mid-month' sale only if the entire position is sold, but that makes sense.
The overall question is: Is it certain that the entire accrued dividend amount as of a 'mid-month' sale date will be paid out and identified as a separate dividend line item in subsequent paperwork, whether the payout is immediate or at the next ex-dividend date, assuming daily accrual?
I think the answer is "yes", so just confirming. But why this need for reassurance?
I want to respond to Alex-686 below by trying to explain that I am not trying to game anything, but rather to not be gamed.
Why this level of skepticism?
I was thrown into a new level of general skepticism when I found out that a specific Fidelity U.S. government bond fund, FIPDX, with daily accrual and monthly payout specified in the full prospectus, has distributed zero dividend dollars YTD as of the end of October 2022. Effectively, it appears to behave as an annual dividend payout fund due to the manager's discretion, and the prospectus' wording is legally addressed by listing monthly dividends of zero dollars rounded off.
If that is legal, which it must be, I want to question everything about dividends from now on.
It really sounds like you need to be questioning the fund manager of the specific fund with which you are having the issue, though
Topic Author
Carsson3
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Joined: Tue Nov 08, 2022 5:44 pm

Re: Mutual fund sales and dividends payout conditions

Post by Carsson3 »

I one hundred percent agree that I need to be questioning the fund manager, but at Fidelity I do not find that person accessible, even indirectly through those employees who take my calls. Yes, many basic questions can be addressed through such indirect contacts, but not apparently this one about why no material dividends are forthcoming. That is an issue of "manager's discretion", so not to be addressed by anyone but the fund manager.
One of the Fidelity employees I contacted said I could write the fund manager a paper letter, indicating in my mind a wait of three weeks or more to find out why no dividends YTD for a government fund obviously receiving interest payments without fail.
I thought that time period was unreasonable, so I pulled out most of my funds from Fidelity.
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