Bill Kaiser

Bland Garvey’s Wealth Advisor, Bill Kaiser, CPA/PFS, CFP explains a mutual fund’s Net Asset Value, and why the way that investors take dividends and capital gains may affect how they view an investment statement’s “change in market value” column.

If you’re like many, this is the time of year you are wading through the stack of mail that has accumulated following a busy holiday season. Credit card bills, tax statements, and, yes, your brokerage and investment statements are now probably getting some much-needed attention.

If you are like me, you opened your investment account statement as if you were unwrapping a late holiday gift, full of anticipation to see how great the numbers would look after the December “Santa Claus” rally. But to your dismay, you are shocked when you view the “change in market value” column and it is negative for the month of December.

You may be thinking: What? How could that be? The Dow and S&P 500 were up for December! Why do I have a decline in my portfolio’s market value?

Your initial reaction may be to pick up the phone and inquire of your advisor why your statement’s market value is down when the market has been climbing. But upon further inspection, when you look at your beginning account balance and compare it to your ending account balance, you see there actually was an increase.

The culprit of this odd phenomenon? Mutual fund dividend and capital gain distributions.

Most investors these days own mutual funds, which generally offer greater diversification potential than holding individual stocks. However, by design, mutual funds are required to distribute at least 95 percent of any gains they may have realized throughout the year to their shareholders. For most funds, this typically occurs in the month of December.

Mutual funds trade at what is called a Net Asset Value, or NAV. That value is the total value of the fund’s underlying investments’ market value, plus any income it received from dividends and any capital gains it may have realized from selling securities less the fund’s operating expenses. Any time a mutual fund makes a dividend payment or capital gain payment, it reduces the value of the fund (that is, the NAV) by that amount.

For example, let’s say you have $1,000 invested in 100 shares of a mutual fund that has a NAV of $10 per share. The fund makes a capital gain distribution of $1 per share. Because you have 100 shares, you receive $100 in cash for the distribution. The NAV of the fund is now $9 per share, so your fund’s market value is now $900, but you also have $100 in cash for a total investment value of $1,000.

Some investors may elect to have their dividends and capital gains automatically reinvested in the fund upon distribution. In the preceding hypothetical, your $100 cash payment would go to buy more shares at $9 per share, which would get you an additional 11.111 shares. Now you would have 111.11 shares at $9 per share for a total value still of $1,000 ($999.999 due to rounding). If you are one of these investors, then you most likely did not see this process affect the “market value” section of your investment statement.

But many investors elect to receive their dividend and capital gain distributions in cash. This is helpful because said investors can use the cash for rebalancing their portfolios or for covering any distributions they might be taking from it. It also helps keep the number of lots comprising the cost basis of the fund to a minimum.

The bottom line is that, whichever method you may choose to receive your dividend and capital gain distributions, the markets in general offered investors a nice December and 2017. Hopefully, it will make you feel better when paying off those December credit card bills with all of your holiday shopping on them!

Contact Bill Kaiser at or 972-231-2503.

The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.

© 2018, The BAM ALLIANCE

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