What is Ex-date and Record Date?
The dividend cycle is a process. It starts with a board meeting and ends when you get the dividend shares in your account.
An important date for you to mark on your calendar is the Ex-date. If you want to be eligible to receive the dividends or reap the benefits of any other corporate action such as a bonus issue, stock split etc, then you must own (i.e buy) stock of the company prior to the ex-date.
Those shareholders who own the stocks prior to the ex-date are eligible for dividends or other corporate action benefits.
Let’s say the Ex-date announced by a Company A is February 14.
You as an investor or trader wish to take advantage of the benefits from the corporate actions of Company A such as issue of bonus shares or dividends or stock split. In order to be eligible for the benefits, you have to purchase the shares BEFORE the ex-date i.e. any time before Feb. 14.
It takes at least T+2 days to process a trade and for the shares to be reflected in your demat account.
Another important date is the Record Date which is a predetermined and predeclared day when a company goes over the list of shareholders and determines who is eligible for the said returns and who isn’t.
Company A will look at the list of eligible shareholders at the end of trading day on the predetermined Record Date. You will be credited the returns you’re eligible for when Company A distributes the respective returns.
Now, let’s take the situation where you decide that you want to sell your shares on the ex-date itself. You can do so freely! Keep in mind that there’s no pay-in and pay-out of shares from demat accounts between an Ex-date and the Record Date. Since the shares are taken from your demat account and moved to the brokers’ Pool Account, the shares will not be reflected in your demat account on the Record Date.
Since the shares are in held in the brokers’ Pool Account the returns (dividends/bonus shares etc.) from corporate actions are not reflected in your account immediately. However, the brokers will receive the credit for the time being and will pass it on to you eventually.
If you have purchased the shares BEFORE the Ex-date, you’re eligible for the returns—irrespective of whether you sold your shares on or after the Ex-date.