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Vanguard GNMA Inv Message Board

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  • hopping_on_bandwagon hopping_on_bandwagon Mar 3, 2012 2:39 PM Flag

    Dumb Question

    Found this explanation/example from a website:
    When a distribution is made on a fund’s “reinvest date” (which is also known as ex-date, or ex-dividend) the Net Asset Value (NAV) goes down by the same amount. However, even though the NAV may go down, unless there is a change to the fund’s underlying securities, the value of your account will not be affected.

    For example: Assume you own 100 shares of a fund with an NAV of $10, your investment is worth $1,000. The fund declares and makes a distribution of $0.10 per share. On the reinvest date, the fund's NAV drops to $9.90 per share, assuming the shares did not change in value due to market conditions. If you reinvest your $10 distribution (100 shares x $0.10 per share), you buy an additional 1.01 shares at $9.90 per share. The value of your account is still $1,000 (101.01 shares x $9.90 per share).

    If you do not reinvest your distribution, the value of your account would be worth $990 (100 shares x $9.90 per share). But you would not have lost any money because you will receive the $10 distribution, either by check, directly into your bank account or invested in another Domini Fund, however you choose. HOP

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