For bonds that are purchased at a discount, accretion occurs between the bond's purchase date and date of maturity. Similarly, bonds that are purchased at a premium are amortized between the purchase date and maturity date. When accreting or amortizing your bonds you will generally want to record these amounts at the end of each tax reporting period.
You may elect to record your own amounts for accretion or amortization, or have Fund Manager calculate the amounts for you. Fund Manager uses the "constant yield" method to calculate the amounts of accretion or amortization. The Yield To Maturity (YTM) for the bond is used here. You can either specify the YTM to use in the calculation, or have Fund Manager calculate the YTM of your bond for you.
It is important to record accretion and amortization in chronological order if you are having Fund Manager do the calculation for you. You normally should also use the same value for YTM in accretion/amortization calculations for the life of the bond. When using the built-in calculator the memo field records the accretions/amortization date range covered, and also the YTM value used in the calculation.
When recording an accretion or amortization, two distribution transactions of equal amounts but opposite sign are recorded. For accretion entries, a positive valued distribution of type "Accretion" will be recorded, and a negative valued distribution of type "Return of Capital" will be recorded. The two amounts are equal, but opposite in sign. The net effect is there is no cash flow, no change in performance, but you've accumulated some accretion, and raised your tax cost basis by equal amounts. Return of Capital distributions affect your cost basis for all shares owned as of the date of the distribution. A positive Return of Capital lowers your tax cost basis, and a negative Return of Capital raises your tax cost basis. For amortization entries, a negative valued distribution of type "Amortization" will be recorded, and a positive valued distribution of type "Return of Capital" will be recorded.
You may elect to record your own amounts for accretion or amortization, or have Fund Manager calculate the amounts for you. Fund Manager uses the "constant yield" method to calculate the amounts of accretion or amortization. The Yield To Maturity (YTM) for the bond is used here. You can either specify the YTM to use in the calculation, or have Fund Manager calculate the YTM of your bond for you.
It is important to record accretion and amortization in chronological order if you are having Fund Manager do the calculation for you. You normally should also use the same value for YTM in accretion/amortization calculations for the life of the bond. When using the built-in calculator the memo field records the accretions/amortization date range covered, and also the YTM value used in the calculation.
When recording an accretion or amortization, two distribution transactions of equal amounts but opposite sign are recorded. For accretion entries, a positive valued distribution of type "Accretion" will be recorded, and a negative valued distribution of type "Return of Capital" will be recorded. The two amounts are equal, but opposite in sign. The net effect is there is no cash flow, no change in performance, but you've accumulated some accretion, and raised your tax cost basis by equal amounts. Return of Capital distributions affect your cost basis for all shares owned as of the date of the distribution. A positive Return of Capital lowers your tax cost basis, and a negative Return of Capital raises your tax cost basis. For amortization entries, a negative valued distribution of type "Amortization" will be recorded, and a positive valued distribution of type "Return of Capital" will be recorded.
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