Date to liquidate fund

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Chardo
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Joined: Fri Feb 18, 2022 12:16 pm

Date to liquidate fund

Post by Chardo »

I have a muni bond fund that I'm about to liquidate. Monthly dividends are distributed (reinvested) the last day of the month. Should I wait until after?
Fired2020
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Joined: Sat Jan 23, 2021 3:12 pm

Re: Date to liquidate fund

Post by Fired2020 »

I'm not sure if it would make much of a difference, the share-price should drop by about the amount of the dividend that was just paid-out.
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grabiner
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Re: Date to liquidate fund

Post by grabiner »

Fired2020 wrote: Tue Jul 09, 2024 3:58 pm I'm not sure if it would make much of a difference, the share-price should drop by about the amount of the dividend that was just paid-out.
This isn't the case for most muni funds, but it still doesn't matter.

Most muni funds accrue dividends daily. If your muni fund has a 3.65% yield and you have $100K in the fund, you will receive a $310 dividend on July 31. If you sell the fund on July 31, you will receive a $300 dividend since you held the bonds for 30 of the 31 days.

For an ETF, the share price will drop by the dividend amount, so selling just before the end of the month will give you a capital gain (or reduced capital loss) equal to the dividend. Thus, in theory, there is a slight advantage in waiting for the end of the month, so that you get the money as a tax-exempt dividend rather than a taxable capital gain. (Conversely, for a taxable bond ETF, it would be better to sell for a long-term gain before the dividend date, since long-term gains are taxed at a lower rate than bond dividends.)
Wiki David Grabiner
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