Dumb Question About Capital Gains Reinvestment

[ministashy]

This is probably a very very dumb question, but I can't seem to find an answer anywhere else.  Basically, I oversee a family fund where all returns are automatically reinvested.  On 12/30 this fund generated $3921 in dividends, $5737 in long term capital gains, and $472 in short term capital gains.  All of this was automatically reinvested in the fund, yet when I look at the fund balance, I don't see a $10K increase, but an increase of only $2054.  There's been no corresponding market drop to account for this.  Can someone explain where the missing $8K or so went?  Do mutual fund values go down that much when year end distributions are made?

Thanks in advance!

[yachi]

The information you're looking at is provided to you for tax purposes.
The dividends could have been received by the fund sometime during the last quarter, or the last year.  I'm not sure about their reporting requirements.
 
Long-term capital gains would be from selling something the fund has held more than year for a profit, but that profit would be spread out over the period the fund owned it.  So if the fund bought a stock for 10,000 in 2018, and sold it on 12/30 for 12,000, it would have a $2,000 long term capital gain.  But immediately before they sold the stock to immediately after they sold the stock their overall account value wouldn't change.  They're simply exchanging stock valued at $12,000 for cash valued at $12,000.

Short term capital gains are on stocks held less than a year, but the same applies.  The gain could have occurred from February to March, and then the stock languished until they decided to sell it at year end.

[ministashy]

I'm sorry, I guess I don't quite understand.  (For the record, this is only for dividends generated on 12/30, not the ones earlier in the year - this fund does them biannually)

Aren't distributions paid to investors?  So if I got a $5K long term capital gains from an investment and hadn't chosen to reinvest, shouldn't I have seen a $5K deposit in my brokerage checking account?  Or am I misunderstanding how that works, and that is only the case for dividends?

[yachi]

I'm sorry, I guess I don't quite understand.  (For the record, this is only for dividends generated on 12/30, not the ones earlier in the year - this fund does them biannually)

Aren't distributions paid to investors?  So if I got a $5K long term capital gains from an investment and hadn't chosen to reinvest, shouldn't I have seen a $5K deposit in my brokerage checking account?  Or am I misunderstanding how that works, and that is only the case for dividends?

Yeah, I think they do have to be paid to investors.  I was misunderstanding how it works.  Here's a better explanation: https://www.thebalance.com/mutual-fund-capital-gains-distributions-2466692
Your share count should have increased following the distribution and reinvestment.  Do you own more shares than you did on 12/29?

[seattlecyclone]

Dividends aren't magic money that rains down from the heavens. They have to come from somewhere. Suppose you have a share of a mutual fund worth $10 before distributing dividends/gains, and they distribute $1. Now the share is worth only $9 because $1 was removed from the fund and distributed to investors. You can reinvest that $1 if you like, so now you'll own 1.1111 shares and your total investment will be worth $10: same as before the distribution was paid. The distribution and subsequent reinvestment are therefore perfectly neutral in terms of your total account value, at least before any taxes are paid on that distribution. The $2,054 of account increase you're seeing has nothing at all to do with the distribution and everything to do with what happened in the markets since then.

[Malum Prohibitum]

If they are reinvested you will notice a correspondingly higher number of shares the next day or two afterward.