What Is the SEC Yield?
Let me explain the SEC 30-day yield to you—it's a key metric for comparing bond funds, and it's standardized by the Securities and Exchange Commission (SEC). This yield comes from dividends and interest earned, minus expenses, over a recent 30-day period. It gives you a clear picture of what you might earn annually, so you can make better investment choices.
Key Takeaways
You should know that the SEC yield is a standard way to compare bond funds fairly. It shows income from dividends and interest after subtracting expenses over 30 days, then annualizes it for potential yearly returns. Remember, it's different from distribution yield, as they provide different earnings details. The formula uses four variables: income, expenses, shares entitled to distributions, and maximum share price. Funds have to report this yield, so it's a solid benchmark for projecting future income.
How the SEC Yield Works
The SEC yield lets you compare bond funds by indicating the effective interest rate you could earn. I find it's a reliable method for mutual funds or ETFs because it's consistent month to month. The calculation tells you what you'd earn over 12 months if the fund keeps the same rate. Funds must compute this yield—it's required. Note that it differs from the distribution yield you often see on a bond's website.
How to Calculate the SEC Yield
Most funds figure out the 30-day SEC yield at the end of each month, but U.S. money market funds use a seven-day version. Here's how it works: First, find the total interest and dividends from the last 30 days—that's 'a'. Then, calculate accrued expenses over those 30 days, not including reimbursements—that's 'b'. Next, get the average daily number of shares outstanding that can receive distributions—that's 'c'. Finally, note the maximum share price on the last day of the period—that's 'd'. You plug these into the formula: 2 x (((a - b) / (c x d) + 1) ^ 6 - 1) to get the SEC yield.
Four Standardized Formula Variables
The 30-day SEC yield formula relies on four variables. 'a' is the total interest and dividends from the last 30 days. 'b' covers accrued expenses over that period, excluding reimbursements. 'c' is the average daily number of shares entitled to distributions. 'd' is the maximum price per share on the calculation day, which is the last day of the period. The annualized formula is 2 x (((a - b) / (c x d) + 1) ^ 6 - 1).
SEC Yield Calculation Example
Take Investment Fund X as an example—it earned $12,500 in dividends and $3,000 in interest. The fund had $6,000 in expenses, but $2,000 was reimbursed. There were 150,000 shares entitled to distributions, and the highest price on the last day was $75. So, a = $15,500, b = $4,000, c = 150,000, d = $75. Plugging in: 30-day yield = 2 x ((($15,500 - $4,000) / (150,000 x $75) + 1) ^ 6 - 1), which comes to 2 x (0.00615) = 1.23%.
The Bottom Line
In the end, the SEC yield is essential for comparing bond funds—it gives a consistent, fair measure of annual earnings if the current rate holds. It uses variables like interest, dividends, expenses, shares, and price per share to reflect performance accurately, including expenses and effective interest. By understanding this yield, you can make smarter decisions when evaluating mutual funds and ETFs.
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