Why does the fund s share price drop when a capital gain distribution is paid?
When profits from sales of securities outweigh losses, they accumulate and contribute to the rise of the net asset value (NAV) of the fund s shares. When that profit is paid out to shareholders its NAV, or share price, is reduced by the amount of the distribution. Example: Say a fund share sells at an NAV of $10. If sales of the fund s securities have resulted in the fund making a capital gain distribution of $2 a share during the year, $2 will be deducted from the NAV and paid to shareholders on a specified date. On that date the fund share price will decline to $8.
