Accruals, Interest and Dividends

In the world of investments, an accrual is an unrealized earning on a mutual fund, money market or checking account. Many mutual funds record dividend payments which become accrued until what is called the ex date, or “cut-off” date. Following the ex date is the “payment date”, the day the dividend is paid out. Not all market data providers use the same “payment date” so it helps to compare at least two sources for the monthly return on a fund, Morningstar and Google Finance, for example. The fractional share that will be paid to investors is determined by the fund manager on the “record date” and is based largely on investment performance.

The accrued dividend is included in the investment performance for the month. Dividend payments can be either received as brokerage income or reinvested. The dividend reinvestment slightly grows the number of shares held each successive month. Fund managers always provide incentives to those that reinvest their dividend shares, including the occasional service fee reimbursement.

Investment gains on money market and checking accounts most commonly called “interest.” Although, money market income can sometimes be called dividends. These funds often serve as brokerage accounts from which cash is drawn to invest in other assets and monthly payments are not reinvested. They simply enable investors to earn some interest on cash.

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