How do distributions affect a fund’s Net Asset Value (NAV)?
When distributions are paid out to shareholders, a fund’s NAV will be reduced by the amount of the distribution. However, for shareholders receiving such a distribution, the drop in NAV is offset by the distribution received in the form of either cash or as a reinvestment into additional shares of a fund. Example: A shareholder owns 100 shares valued at $10/share on the record date. Thus the account is worth $1,000. The fund distributes capital gains equal to $2 per share (a total distribution of $200). As a result of the cash distribution to shareholders, the fund’s NAV will fall to $8 per share on the ex-dividend date. The shareholder still owns 100 shares but they now are valued at $8 per share (a total value of $800). When the $800 account value is added to the $200 in capital gains received, the total account value is $1,000. If you reinvest the distribution, as many shareholders do, the number of shares in your account will increase, while the total value of your account will rem
