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system
do stock prices drop due to dividends?
user
the paragraph talks about dividends given by mutual funds. say a fund has nav of $ 10, as the value of the underlying security grows, the value of the fund would also grow, lets say it becomes $ 12 in 2 months. now if the mutual fund decides to pay out a dividend of $ 1 to all unit holder, then post the distribution of dividend, the value of the fund would become to $ 11. thus if you are say investing on 1-april and know that dividends of $1 would be paid on 5-april [the divided distribution date is published typically weeks in advance], if you are hoping to make $1 in 5 days, that is not going to happen. on 6-april you would get $1, but the value of the fund would now be $11 from the earlier $12. this may not be wise as in some countries you would ending up paying tax on $1. even in shares, the concept is similar, however the price may get corrected immediately and one may not actually see it going down by $1 due to market dynamics.
assistant