There has to be a catch

[kimchi]

I can invest in 2 different corporate bond funds from 2 different companies.

Fund 1 ex-dividend / payment dates:
interim: Jan2 / Feb28
final: Jul3 / Aug31

Fund 2 ex-dividend / payment dates:
interim: Apr2 / May31
final: Oct2 / Nov30

Both funds pay around 4.5 to 5% per year split roughly evenly between interim and final payments.

The funds don't behave like stocks (just my observation) when they go ex-dividend. ie. The funds don't drop a similar amount to their yield when they go ex-dividend

So, the dividend dates are effectively staggered throughout the year between the two funds. This seems like a noob question, but can I move my funds in and out of these to take advantage of both dividends. This would increase the yield to 9-10% while not increasing my risk.

Does anyone know what the deal is for mutual fund ex-dividend and payment dates? There are other funds whose payment dates can be slipped between the ones above, but there's some overlap.

I know there's an obvious catch/flaw, so what is it?

[Evan]

I think the catch is that bonds don't get paid dividends, as far as I know.

[kimchi]

[ QUOTE ]
I think the catch is that bonds don't get paid dividends, as far as I know.

[/ QUOTE ]

OK, interest, payments, income - call it what you will.

They're called dividends on the key features docs and the term 'ex-dividend date' is used in the literature when describing the income producing payment.

So, what's the catch?

[DcifrThs]

i think the way it works is that the fund doesn't just pay you full dividends if you buy into it on day 1 and dividends pay on day 2.

there is probably some holding period requirement.

think about it like total return swaps or something like that where if you enter into one for 35 days or some random amount of time like that, you owe (1+Return)^(35/360 or 365)

similarly, i'd think you get paid cash via bond funds on some similar time period that compensates you for the time your money has been out.

so think about it like this, could you buy into the funds 1 day before the ex-div date and then sell immediately after?

i'm pretty sure they don't allow quick moves like this while receiving div payments.

Barron

[SteveOMS]

It's possible the bond funds accrue dividends on the client level daily and pay out monthly. IE each day theres a distribution rate so to receive that amount quarterly you have to be a holder that day. Although this is much more common on funds that pay out monthly instead of every quarter and more common on GIC, stable value type funds. Posting the tickers here would be helpful.

SteveOMS

[mal_noles]

I am fairly certain you pay the accrued interest to whoever you are buying the bonds from. Only time I have ever bought corporates thats how it worked.

[kimchi]

When I've sold bond funds before, I've recieved payments a month or 2 down the line. The above 'ex-dividend' and payment dates were published on their websites. I assumed I could hold the bi-annually paying fund for 3 months, collect the interim payment, switch into another that pays monthly until the other fund's final payment ex-dividend date approaches, and then switch back to collect the final dividend payment.

I think I need to find out some more about this from somehwere.

I forgot to mention that they are no-load funds and I don't pay any taxes on them.

Thanks for the explanations posted.

[kiddcheckers]

Yes. when you buy a bond you pay coupon plus accrued interest up to that date, pretty sure that's the case, I have a series 52 and 63 and am going to be embarrassed if I'm wrong here.

[kimchi]

[ QUOTE ]
Yes. when you buy a bond you pay coupon plus accrued interest up to that date, pretty sure that's the case, I have a series 52 and 63 and am going to be embarrassed if I'm wrong here.

[/ QUOTE ]

I'm talking about corporate bond mutual funds here, I'm not sure if there's a difference. (Not sure what series 52 and 63 are - maybe that's a US term).

The fund owns a few dozen bonds which, and I just assumed that the fund manager distributes thuis income on set days.

Since they have an ex-dividend date, then would it not be possible to take advantage of a bi-annnual interim and final payment without needing to be fully invested in the fund for the full 12 months?

I don't fully understand the way bond mutual funds work (if it makes any difference, I'm a UK investor).

[DcifrThs]

[ QUOTE ]
[ QUOTE ]
Yes. when you buy a bond you pay coupon plus accrued interest up to that date, pretty sure that's the case, I have a series 52 and 63 and am going to be embarrassed if I'm wrong here.

[/ QUOTE ]

I'm talking about corporate bond mutual funds here, I'm not sure if there's a difference. (Not sure what series 52 and 63 are - maybe that's a US term).

The fund owns a few dozen bonds which, and I just assumed that the fund manager distributes thuis income on set days.

Since they have an ex-dividend date, then would it not be possible to take advantage of a bi-annnual interim and final payment without needing to be fully invested in the fund for the full 12 months?

I don't fully understand the way bond mutual funds work (if it makes any difference, I'm a UK investor).

[/ QUOTE ]

i'd be willing to bet you can't arb this. if there are 20 bonds in the fund and they have random dividend dates within the year, then i'm pretty sure the fund manager (assuming he pays out all dividends) takes ownership stock of those who own the bonds for a certain period of time and pro rate the payements accordingly.

or some variation of that.

Barron