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Definition: Cum- Interest and Ex-Interest
The terms cum interest and ex-interest are predominantly used in the context of fixed income securities like bonds etc. Cum interest is the amount of interest accrued in the duration between the last coupon date and the settlement date or transaction date. In this regard, it is to be understood that the closing register date of the coupon is due. Hence, cum interest refers to ‘with interest’. The buyer of the transaction receives the full coupon payment is required to pay the portion which is not due to him to the seller.
Ex-interest is the amount of coupon interest between transaction date or settlement date and the next coupon date. In this regard, it is to be understood that the closing register date of the coupon is due. Hence, it is also known as ‘without interest’. Here, the seller is required to pay the portion of interest not due to the buyer since the seller has already received the full coupon payment. For e.g.
If bond trades from 30 April, 2012 to 30 November, 2012, the bond belongs to buyer on register closing date. Hence, the buyer will receive all interest and the seller must be refunded. This portion of interest is called cum interest. If bond trades from 30 November, 2012 to 30 April, 2013, the bond belongs to seller on register closing date. Hence, the seller will receive all interest and the buyer must be refunded. This portion of interest is called as ex interest.