dividend question?

Question

Would this work or am I missing something?

Let said I keep $500 in an saving account that pays 5.05% APR, then on the last business day of each month, I use the money to buy bond mutual fund yields 5% that pays dividend monthly(record date is the last business day of each month).

I keep the mutual fund just for a day then sell them and re-deposit to the savings account and repeat the process for the entire year. Will I earn 10% +- the realize gain or loss?

Answer 1

No, because the payout on both the dividend and on the savings account are rated based on the amount of time you had the money in the investment. For instance, if you had the $500 in for one day, you would get 1/365 of 5.05%*500 ($.07) If you had it in for the full month, you would have gotten 30/365 of 5.05%*500 ($2.10).
My numbers are a bit off because of compounding, but you should get the general idea.

Answer 2

Your broker fees to do it this way will eat all of your profits.

If you were dealing with millions of dollars, then yes you could do this.

Same way with a person's mortgage. If you get a Home Equity Line Of Credit (HELOC) and use that to pay down your mortgage before the end of the month to avoid the interest being calculated in Arrears, then you can save a lot of money on your loan.

Answer 3

Good try, but if your scenario were to occur, an awful lot of people would be doing it with millions.
The cost of the bond Will tend to rise as the record date approaches, and tends to fall the day after. The cost of the bond is not constant. You would also probably have to pay commissions to trade the bonds, which would also eat into your "profits".
Sorry !

Answer 4

That is called timing, and is much frowned upon these days. Most mutual fund rules will not permit that, more than once. Nice try though.