While I was studing my 401K I found something strange on my Dividend Mutual Funds. I ask the provider of my 401 for information and this is what they told me.
To clarify, when I invest on thier fund they put the money on a sub-account of the Mutual Fund, so the price is diferent.
On December 13 2006 the unit value for the Example Investment sub-account was 71.555. If you had $100.00 in the fund at the close of business that day, you would own 1.3975263 units.
Meanwhile, the share price of the Example Investment Mutual Fund was 50.61. If you had 100 invested directly with Example Investment, you would own 1.975894 shares of their fund.
Example Investment declared a dividend of 9.88 per share on December 16. This caused the Net Asset Value per share of the fund to drop from 50.61 to 40.73. What does this mean to you as an individual investor? Your balance now falls from 100 to 80.48 and you have a 19.52 distribution (9.88 per share). Most investors opt to receive additional shares to bring their investment back to its original value. In this case 9.88 would buy you an additional 0.479253 shares (19.52/40.73=0.479253). This now brings your account back up to $100.00 and you now own 2.455147 shares in their Example Fund.
My provider reinvests the distribution into new shares of the Example Investment Mutual Fund, retaining the full value of the investment. The number of units and the unit value of the sub-account remain unchanged, while the Net Asset Value per share price of the Example Investment Mutual Fund has declined. Therefore, given that you own 1. 3975263 units in the Example Investment sub-account investing in the Example Investment Mutual Fund, you still have an investment that is worth 100.00 (1.3975263 units multiplied by $71.555 per unit), the same as if you held shares directly in the Example Investment Mutual Fund at 40.73 per share.
So in summary after the dividend
2.455147 * 40.730 = 99.99813731 ~~ 100 sub-account
1.3975263 * 71.555 = 99.9999944 ~~ 100 Mutual Fund
So my question is, does dividend has any impact on a 401K?