Glossary · Rates & Instruments
Accrued Interest
Interest that has been earned on a bond or fixed-income security but has not yet been received or paid. When a bond is bought between coupon payment dates, the buyer typically pays the seller the accrued interest for the period already elapsed.
01—What is Accrued Interest?
The definition — and what it means in practice.
Accrued interest is the interest earned on a bond or other fixed-income security since the last coupon payment date, but not yet paid. If a bond is traded between coupon dates, the seller has effectively “earned” interest for the days they held it. To keep things fair, the buyer typically pays the seller this accrued amount as part of the transaction, and then receives the full next coupon when it is paid.
Accrued interest matters because it changes the cash you pay and the cash you receive around bond trades, without changing the bond’s coupon rate. Investors often see it in the difference between a quoted clean price (price excluding accrued interest) and the dirty price (price including accrued interest). Understanding it helps you compare deals consistently and avoid surprises when buying close to a coupon date.
If a bond pays Rs 100 every six months and you buy halfway to the next coupon, you typically pay about Rs 50 extra to the seller as accrued interest.
Accrued Interest = Coupon Payment × (Days since last coupon ÷ Days in coupon period)
Uses the bond’s coupon amount for the period and the day-count between coupon dates (method depends on the instrument).
- Accrued interest is earned interest that has not yet been paid out.
- Between coupon dates, the buyer typically compensates the seller for accrued interest.
- Clean price excludes accrued interest; dirty price includes it.
- Accrued interest affects cash settlement timing, not the coupon rate itself.
- Buying near a coupon date can increase the amount you pay upfront.
02—How accrued interest works on the PSX
The Pakistan-specific rules, conventions, and numbers.
A PSX investor is most likely to encounter accrued interest when trading fixed-income instruments (for example, bonds) rather than ordinary shares. The concept is mechanical: interest accrues day by day between coupon dates, so the trade price often needs an adjustment so the seller is paid for interest already earned during their holding period.
Because PSX trades settle on T+1 (one business day) through National Clearing Company of Pakistan Limited (NCCPL), the cash amount due at settlement can reflect both the bond price and any accrued interest component. Investors reviewing contract notes or transaction breakdowns may see accrued interest shown separately from the quoted price, depending on how the instrument is quoted and reported.
Accrued interest is different from dividends on listed shares. Dividends are corporate actions declared by companies (often expressed in Pakistan as a percentage of Rs 10 face value), while accrued interest comes from a fixed-income instrument’s coupon schedule. Keeping these concepts separate helps when you track cashflows across equities and fixed-income holdings in one portfolio.
03—Common misconceptions
Where investors most often get this wrong.
Accrued interest is an extra fee charged by the broker.
It is not a fee. It is part of the economics of a bond trade: compensation to the seller for interest earned since the last coupon date.
If I pay accrued interest, I lose money when the next coupon is paid.
You usually receive the full next coupon, but you effectively reimburse the seller for the portion earned before you bought. The net result matches your holding period.
Accrued interest changes the bond’s coupon rate.
The coupon rate is fixed by the bond terms. Accrued interest only allocates the next coupon between buyer and seller based on time held.
04—Using accrued interest on BSL
Where this term shows up across the platform — with live data.
- Read related concepts in the glossary.
- Track instruments and market activity from the market.
- Explore listed opportunities using the stock screener.
- Learn how transaction timing works with T+1 Settlement.
05—Frequently asked questions
What investors ask about accrued interest on the PSX.
Frequently Asked Questions
Accrued interest is interest a fixed-income security has earned since its last coupon payment but has not yet paid. If the security is bought between coupon dates, the buyer typically pays the seller the accrued amount, then receives the full next coupon when it is paid.
A dividend is a distribution declared by a listed company to shareholders. Accrued interest is interest building up between coupon dates on a bond or fixed-income instrument, and is typically settled between buyer and seller when the instrument trades.
You typically pay accrued interest if you buy between coupon payment dates, because the seller has earned interest for the elapsed time. How it appears can depend on whether prices are quoted as clean (excluding) or dirty (including) and how the trade is reported.
Clean price is the quoted bond price excluding accrued interest. Dirty price is the total amount including accrued interest. The dirty price is closer to what you pay or receive in cash at settlement for a trade between coupon dates.
Settlement timing affects when cash and securities exchange hands. Accrued interest reflects the time between coupon dates and may be included in the cash amount due at settlement, which on the PSX is T+1 through NCCPL.
06—Related terms
Keep building the picture.
A fixed-income instrument representing a loan made by an investor to a borrower, typically a government or corporation. The borrower pays periodic interest and repays the principal at maturity.
The annual interest rate payable on a bond, expressed as a percentage of its face value. A bond with a face value of PKR 1,000 and a 10% coupon rate pays PKR 100 in interest per year.
Securities that pay a fixed return over a defined period, such as bonds or government securities. Generally considered lower risk than equities.
The income generated by an investment over a period, expressed as a percentage of the investment's cost or current market value. Dividend yield and bond yield are the most commonly referenced forms.
The total return an investor would earn on a bond if held until its maturity date, accounting for all coupon payments and the difference between the purchase price and face value. The most comprehensive measure of a bond's return.
The current standard settlement cycle on the PSX, where trades are finalised one business day after the transaction date. The shift from T+2 to T+1 was implemented to reduce counterparty risk and improve market efficiency.
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