Wednesday, December 19, 2007

Why Did My Mutual Fund Share Price Go Down?

If you own mutual funds, you may notice a decline in the share price this month that is not related to the decline in the market. What happened?

Dividends and capital gain distributions were paid, and this is a good year for capital gains. The fund paid out assets to shareholders, thereby reducing assets, so the share price must adjust to account for the payouts. This is true even if your distributions are re-invested in the fund. If you check your statement, you should find the "per-share" amount of the distributions. They are usually shown separately for dividends, short-term capital gains and long-term capital gains. Add up the total per-share amounts and you will find the amount by which each share was reduced on the date the distributions were paid.

If you own stock in a company that pays dividends you will see the same accounting adjustment occur every quarter when the dividend is paid.

Many mutual funds pay out capital gain distributions in December so that is why you will see share prices go down this month. Capital gain distributions tend to be larger than dividends - particularly in a bull market year like 2007, so the share price adjustment may seem large - that's why it got your attention.


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