Cum-dividend

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

14 December 2010 Hi
Respected Members

Please help me to know

1. what is cum interest and ex-interest?

2. what is cum dividend and ex-dividend?

3. What is Ex-date when company annouces something to BSE like bonus share, split shares?

CA Sanat Pyne

CA Sanat Pyne (Expert)
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01 January 2011 Cum interest means "with interest" and is the portion of accrued interest between settlement date and the last coupon date. It is payable by an investor to the previous investor as the new investor is obviously not entitled to the full coupon, as she or he has not held it for the full period.

Ex interest, means "without interest" and is the portion of coupon interest between settlement date and next coupon date. It is payable by the previous investor to the new investor where bonds transacted are settled after book close datebut before coupon date. This is because it is assumed that the new investor will have insufficient time to registerthe bond. Thus the previous investor receives the full coupon and pays the portion of interest not due to him, i.e to the new investor.

CA Sanat Pyne

CA Sanat Pyne (Expert)
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01 January 2011 A share is said to be trading cum-dividend when the payment of a dividend is due in the near future and investors who buy the share now will receive the dividend. Once the security goes ex-dividend buyers will not receive the dividend; it will go to the seller who held the shares immediately prior to their going ex-dividend.

When a dividend is paid, it is paid to holders who are on the register (the company's register of shareholders in the case of shares) on a particular date, called the record date. In order to be on the register of shareholders on the record date a buyer needs to purchase the shares early enough that the trade will be settled (i.e. the shares transferred to the buyer) by the record date.

When a share goes ex-dividend, the price will drop (other things being equal) by the amount of the dividend

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CA Sanat Pyne

CA Sanat Pyne (Expert)
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01 January 2011 Ex-Date: It is the date on which the corporate benefit is reflected in the share price. The investors who hold the securities just before this day are eligible for corporate benefits. The people who buy shares on or after this date are not eligible for the benefits.

Record date and Ex-Date both sound similar? There is a difference. If we buy a security today the share will get delivered to your account after T+2 days. Usually there is a difference of 1 or 2 trading days between Record date and Ex-date. If you buy a security 1 day before Ex-date the share will be on your name in the books of share holders of the company before the record date and you will be eligible for the benefits. Buyers who buy the shares on or after the Ex-Date are not eligible for the same.

CA Sanat Pyne

CA Sanat Pyne (Expert)
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01 January 2011 I will try to make it simple with an example. Let’s say Reliance Power announced Bonus issue of shares. Book Closure dates are from 2008 July 23rd to 25th . Ex date is 21st July and record date is 22nd July. That is if you buy Reliance Power shares before 21st July your name will be there in the share holders books of the company and you will get bonus shares. Usually it takes 7 – 8 days for the bonus shares to get credited to your account. The person who buys Rel Power shares on or after 21st July is not eligible for the bonus issue because company considers the entries in share holders books end of the day on Record Date. Company will close its books from July 23rd to 25th

On Ex-Date the price of the Rel Power is Ex-Bonus i.e. if the price of the share is Rs500 on 20th July it would be around Rs260 (consider 1:1 bonus. Because of the lower price liquidity increases and hence the price will move little more than Rs. 250) on July 21st.

If you have 1000 shares on July 20th you can sell them on that day for Rs500 per share. On July 21st the price would be Rs260 and you will have only 1000 shares. The remaining 1000 shares will get added to your account after 7-8 days.