Buying accumulation fund on ex-dividend date (Vanguard Lifestrategy)

haveabreak

Hello

A dividend planning question:
The Vanguard Lifestrategy fund (e.g 20%, 80% etc) accumulating funds declare dividends annually and have a ex-dividend date of 1st April. If I buy the fund (executed) on 1st April does it mean I am tied to notionally receive the dividend? Or does the buy need to be executed on 2nd April to not receive the notional dividend?

Thanks in advance

mika_dm

If the transaction has been cleared by 1st of April you will get the dividends. If you bought on 1st of April, the transaction will be cleared on 2/3rd of April and you will not receive the dividends.
Normally, you have to buy it with 1-2 days prior the ex Dividend day(depending on  your broker)

Prism

Well since an accumulation fund doesn't pay a dividend then it doesn't matter. The dividends of the underlying companies are reinvested as they get paid.

underground99

If the price of the fund declared by the fund manager on 1 April is going to be ex (exclusive of) the dividend, then any order accepted for that day's dealing point will NOT qualify you to receive the dividend. By contrast if your order is accepted by the cut-off for tomorrow's dealing point, the contract note eventually produced will show you bought into the fund on 31 March which was before the shares started trading without the dividend... so you have bought into the dividend. 

However you would not get a 'full year' dividend if you haven't held the shares for the full year; although a subscription accepted on 31 March would entitle you to the accumulating distribution, your allocation of income would be some lower amount (calculated by reference to all the new fund shares for investors that were created only part way through the year); so part of the notional distribution is 'income' and the other part is simply equalisation.

Notepad_Phil

Prism said:

Well since an accumulation fund doesn't pay a dividend then it doesn't matter. The dividends of the underlying companies are reinvested as they get paid.

But they would still have to pay any tax that is owed due to that dividend if it wasn't bought in a tax sheltered account e.g. S&S ISA or Sipp etc. Though given that most people have a £2000 dividend allowance it's probably a mute point.

haveabreak

underground99 said:

If the price of the fund declared by the fund manager on 1 April is going to be ex (exclusive of) the dividend, then any order accepted for that day's dealing point will NOT qualify you to receive the dividend. By contrast if your order is accepted by the cut-off for tomorrow's dealing point, the contract note eventually produced will show you bought into the fund on 31 March which was before the shares started trading without the dividend... so you have bought into the dividend. 

However you would not get a 'full year' dividend if you haven't held the shares for the full year; although a subscription accepted on 31 March would entitle you to the accumulating distribution, your allocation of income would be some lower amount (calculated by reference to all the new fund shares for investors that were created only part way through the year); so part of the notional distribution is 'income' and the other part is simply equalisation.

Thanks. So actually it's the reverse problem - I'm trying to avoid getting the dividend. So sounds like I need to get the sell order accepted by the cut-off for tomorrow's dealing point (31st March) as the 1 April (ex dividend date) dealing point will be too late.

underground99

haveabreak said:

underground99 said:

If the price of the fund declared by the fund manager on 1 April is going to be ex (exclusive of) the dividend, then any order accepted for that day's dealing point will NOT qualify you to receive the dividend. By contrast if your order is accepted by the cut-off for tomorrow's dealing point, the contract note eventually produced will show you bought into the fund on 31 March which was before the shares started trading without the dividend... so you have bought into the dividend. 

However you would not get a 'full year' dividend if you haven't held the shares for the full year; although a subscription accepted on 31 March would entitle you to the accumulating distribution, your allocation of income would be some lower amount (calculated by reference to all the new fund shares for investors that were created only part way through the year); so part of the notional distribution is 'income' and the other part is simply equalisation.

Thanks. So actually it's the reverse problem - I'm trying to avoid getting the dividend. So sounds like I need to get the sell order accepted by the cut-off for tomorrow's dealing point (31st March) as the 1 April (ex dividend date) dealing point will be too late.

Yes, if it is not going ex div until Thursday you can redeem tomorrow 31st and cash-in your rights to receive the dividend, and won't get it; 

Whereas if you redeemed when it was ex-div, you'd be cashing in the shares without the right to receive the dividend (i.e. keeping the dividend for yourself).

 So, you can just log on now and place your redemption order and it should go through at the next cut-off, for 31 March valuation.

Linton

haveabreak said:

underground99 said:

If the price of the fund declared by the fund manager on 1 April is going to be ex (exclusive of) the dividend, then any order accepted for that day's dealing point will NOT qualify you to receive the dividend. By contrast if your order is accepted by the cut-off for tomorrow's dealing point, the contract note eventually produced will show you bought into the fund on 31 March which was before the shares started trading without the dividend... so you have bought into the dividend. 

However you would not get a 'full year' dividend if you haven't held the shares for the full year; although a subscription accepted on 31 March would entitle you to the accumulating distribution, your allocation of income would be some lower amount (calculated by reference to all the new fund shares for investors that were created only part way through the year); so part of the notional distribution is 'income' and the other part is simply equalisation.

Thanks. So actually it's the reverse problem - I'm trying to avoid getting the dividend. So sounds like I need to get the sell order accepted by the cut-off for tomorrow's dealing point (31st March) as the 1 April (ex dividend date) dealing point will be too late.

I dont see why you are so concerned.  You have already got the dividends, they are continually added to the fund.  For Acc funds the only significance of the ex-dividend date is for trax purposes.  And in your case if you happen to buy the fund a day before the ex-dividend date you would not pay any significant tax since all except one day's income would be counted as equalisation.

underground99

Linton said:

haveabreak said:

underground99 said:

If the price of the fund declared by the fund manager on 1 April is going to be ex (exclusive of) the dividend, then any order accepted for that day's dealing point will NOT qualify you to receive the dividend. By contrast if your order is accepted by the cut-off for tomorrow's dealing point, the contract note eventually produced will show you bought into the fund on 31 March which was before the shares started trading without the dividend... so you have bought into the dividend. 

However you would not get a 'full year' dividend if you haven't held the shares for the full year; although a subscription accepted on 31 March would entitle you to the accumulating distribution, your allocation of income would be some lower amount (calculated by reference to all the new fund shares for investors that were created only part way through the year); so part of the notional distribution is 'income' and the other part is simply equalisation.

Thanks. So actually it's the reverse problem - I'm trying to avoid getting the dividend. So sounds like I need to get the sell order accepted by the cut-off for tomorrow's dealing point (31st March) as the 1 April (ex dividend date) dealing point will be too late.

I dont see why you are so concerned.  You have already got the dividends, they are continually added to the fund.  For Acc funds the only significance of the ex-dividend date is for trax purposes.  And in your case if you happen to buy the fund a day before the ex-dividend date you would not pay any significant tax since all except one day's income would be counted as equalisation.

In practice though, if you buy one day from the end of the dividend period, you don't get 1/365th of the dividend, just like those buying on the second day after the last ex-div won't get 364/365ths. 

The people who have had the shares all the way through the year are in one group together (and all get a full dividend) while all the people who haven't held for the full year are put into a group together (and get a mix of dividend and equalisation between them, not personalised to the individual).   So you might join during the last week of the year and still get half a year's div or some other amount of div, depending on the timing of when the weighted average of the 'new' investors in your group bought in.

haveabreak

underground99 said:

haveabreak said:

underground99 said:

If the price of the fund declared by the fund manager on 1 April is going to be ex (exclusive of) the dividend, then any order accepted for that day's dealing point will NOT qualify you to receive the dividend. By contrast if your order is accepted by the cut-off for tomorrow's dealing point, the contract note eventually produced will show you bought into the fund on 31 March which was before the shares started trading without the dividend... so you have bought into the dividend. 

However you would not get a 'full year' dividend if you haven't held the shares for the full year; although a subscription accepted on 31 March would entitle you to the accumulating distribution, your allocation of income would be some lower amount (calculated by reference to all the new fund shares for investors that were created only part way through the year); so part of the notional distribution is 'income' and the other part is simply equalisation.

Thanks. So actually it's the reverse problem - I'm trying to avoid getting the dividend. So sounds like I need to get the sell order accepted by the cut-off for tomorrow's dealing point (31st March) as the 1 April (ex dividend date) dealing point will be too late.

Yes, if it is not going ex div until Thursday you can redeem tomorrow 31st and cash-in your rights to receive the dividend, and won't get it; 

Whereas if you redeemed when it was ex-div, you'd be cashing in the shares without the right to receive the dividend (i.e. keeping the dividend for yourself).

 So, you can just log on now and place your redemption order and it should go through at the next cut-off, for 31 March valuation.

Thanks again. I put the sell order in the night before, got the 31st March dealing point and so avoided the dividend. Good to know about the dividend and equalisation point for future reference.