Equalisation for first dividend/interest payment

aroominyork

Am I right in understanding that when a fund is bought between ex-dividend dates, the full total dividend/interest amount is received at the first payment date but it is divided between equalisation and dividend/interest? On 30 June, the payment date, I received an equalisation payment for a fund I bought a couple of months ago; will the interest payment follow during the coming days?

ColdIron

aroominyork said:

Am I right in understanding that when a fund is bought between ex-dividend dates, the full total dividend/interest amount is received at the first payment date but it is divided between equalisation and dividend/interest?

Yes

On 30 June, the payment date, I received an equalisation payment for a fund I bought a couple of months ago; will the interest payment follow during the coming days?

Was it an Inc or Acc fund? If Inc then I would expect it to follow, though they usually turn up at the same time. Platforms have different accounting/reporting practices, some will report the equalisation payment for Acc funds even though it is retained within the fund like dividend payments. Did you receive the equalisation payment in your cash account, i.e. did your cash balance actually increase? What was the fund and platform?

aroominyork

Thanks ColdIron. It's Royal London Short Duration Global Index Linked Bond (Income) held on Interactive Investor. Dividend is 1.9512p and my cash balance for 26,583 units increased by £294.27 with the transaction history showing "Equalisation ROYAL LONDON BOND FUNDS ICVC ROYAL LONDON SHT DUR GBL IDX LKD M I". I bought them on 4 April, about 5/6ths of the way between the 1 Nov and 3 May ex-div dates, yet the equalisation is worth only about 56% of the total interest payment, suggesting the income from the underlying holdings was backloaded to the final month of the period.

ColdIron

Don't forget that the equalisation payment is only for the recent purchase between ex-div dates not necessarily the entire holding. Did you already hold some units bought prior to 01/11/21? E.g if this was your only purchase you would think that equalisation would be broadly 83% (5/6ths) of the total interest payment. If you already held some units the total payment would be comprised of the dividend from the 'old' units plus the dividend and the equalisation from the new units which could well be 56%

aroominyork

No units previously held - this was my only purchase of the fund.

ColdIron

Beats me then

Edit: Though I suppose with IL bonds and recent rate rises they could be 'backloaded to the final month' but I really don't know

ColdIron

Deleted_User said:

The exact date you bought the units doesn't usually matter. Funds usually apply the same amount of equalisation per unit to all holders who bought in since the previous distribution

Well you live and learn, I didn't know that

Seems a little unfair though. If you bought late, and essentially purchased the dividend accrued, you would be taxed on it anyway. If you bought early and 'earned' the dividend you get a tax break via the return of capital

masonic

Both TIPS and Index Linked Gilts pay interest semi-annually. The former are auctioned quarterly with short dates, while the latter are long dated and issued infrequently. It is therefore quite probable that distributions will tend to coincide to some degree, which could leave periods where little to no income is received.

aroominyork

So how do we reconcile the distribution shown by Trustnet (top) and Fidelity (below)?

masonic

The Trustnet data cannot be correct, no income received between 04/05/2020-03/05/2021? I don't think so. The 01/11/2021 figure looks ok, the others do not. Even the Fidelity data is showing no 02/11/2020 distribution, nor a 03/05/2020 (or thereabouts) distribution. I would be suspicious about both.

Edit: Here is data from the annual report showing there was an 18 month period of no distributions (the May 2021 income was carried forward into the final November distribution, and nothing in 2020), although I have no idea why:

aroominyork

All quite confusing. I have written to ii so will see if I get a clear reply. In the meantime, the fund price fell 2.57% when it went ex-div which would be a huge movement if, as Feral says, the payment was 1.107p on a price of just over £1.