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Two mutual funds I follow both plummeted on the same day that they paid out their annual dividends and capital gain distributions. (The rest of the year was relatively stable.) The timing seems too coincidental -- is there a standard/natural reason why this sort of drop might happen on "dividend day"?

The funds are FLVCX (dropped 27% on 2016-12-02) and NBSSX (dropped 9% on 2016-12-16).

Note that a sudden price drop on "dividend day" can be good for investors if they are reinvesting dividends: the lower the share price on that day, the larger number of shares they receive.

marked as duplicate by Dilip Sarwate, JTP - Apologise to Monica Dec 18 '16 at 22:11

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    The price should drop by the amount of the dividend, since someone buying it right before got that immediate return. (The bias will drift back up through the year as the next dividend approaches and repeat the cycle.) Anything more than that is normal market forces. – keshlam Dec 18 '16 at 6:02
  • Thanks! That makes sense and seems consistent with what I've seen. – DanB Dec 18 '16 at 16:51
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    See also this question, and this question. – mikeazo Dec 18 '16 at 19:48
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    This question is essentially the same as as the two questions pointed out by @mikeazo, and the answers to those questions fully answer this one. One of them is even part of the FAQ on meta.money.SE. I am voting to close. – Dilip Sarwate Dec 18 '16 at 20:33

The price of a share of a mutual fund is its Net Asset Value (nav). Before the payout of dividends and capital gain distribution, the fund was holding both stock shares and cash that resulted from dividends and capital gains. After the payout, a share only holds the stock.

Therefore once the cash is paid out the NAV must drop by the same amount as was paid out per share. Thus of course assumes no other activity or valuation changes of the underlying assets. Regular market activity will obscure what the payout does to the NAV.

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