Why your mutual fund dropped on a day the market was up

On Monday, December 18, the Azzad Ethical Fund (ADJEX) made a capital gains distribution to all shareholders, which resulted in an adjusted net asset value (share price) that is lower than it was as of market close on Friday. This is something that all mutual funds do. ADJEX didn’t “tank,” so there’s no need to worry; pooled investments are supposed to work this way. When a fund distributes gains, its share price drops by the per share amount of the distribution–but it’s to your benefit. If you’re like most ADJEX shareholders who have their accounts set to reinvest gains and dividends, you just got more shares of the fund, but your account value remains steady. Why did this happen? Mutual funds are required to work this way to qualify for special tax rules available for registered investment companies. They must pay net income and realized capital gains to their shareholders at least annually. Sometimes this happens monthly or quarterly, but it’s often once a year during December. The reason that distributions occur is because the fund has made money for investors, which is a good thing. Do I have to pay taxes on this? A mutual fund’s distribution of capital