Why does profit-taking result in the fall of a mutual fund's price?

Answer 1

Your question is confusing people, but I think I know what you mean.

When you hear them report "profit taking" in the news it has nothing to do with the mutual fund or the underlying companies making a profit. It has to do with speculators holding stocks that have appreciated substantially and selling those investments to secure the gain. By dumping shares into the market and by them no longer adding demand buy buying, they add supply and reduce demand causing the entire market to fall in price. Since mutual funds are usually broadly diversified holders of a sizeable segment of the market, the mutual fund's price falls with everyone elses.

The profit was taken by someone else, not you and by the time you found out about it, it was gone.

DON'T WORRY ABOUT IT. Mutual fund investors should ignore price fluctuations.

Answer 2

Do you mean "Capital Gains Distribution" results in a lower NAV of a mutual fund? Simply put, the mutual fund company is giving the shareholders some of the profit it has made. Think of this analogy. You have a bank account that pays interest. Your account has grown form $100 to $110 dollars, and you decide to take out $6. You account is now only worth $104, but you still have the $6 in your pocket.

Answer 3

I will try to keep this simple.. it is a very complicated answer to get into to much detail .. Mutual funds are merely a group of individual stocks selected by the fund manager(s) suited for a particular purpose. some are created for long/short term needs of the owners/shareholders.. some are based on certain sectors of the market.. like energy or medical companies..
when the shareholders of the company 'take profits' this means they are thinking the stock has risen to a level that they have made enough money with to justify selling the stock for fear that is is due for a fall. When the stock prices of individual stocks that are within individual mutual funds go down.. the mutual fund follows.

Answer 4

Your question is not clear. Whose "profit-taking" are your referring to?
If a mutual fund takes profit by selling stocks that have appreciated, it is experiencing a capital gain. The capital gain is paid to the fund holders, along with any interest and dividends the fund earns.
When a fund sells shares, it owns less stock, and is therefore worth less by the amount of capital gains paid out. The original purchase price of the appreciated and sold stock is then re-invested.
For the individual investor in the fund, it depends how the account is set up. If you re-invest earnings, the capital gains, interest and dividends earned are used to purchase more shares of the fund.
The end result is: the total value of your shares remains the same, before and after the sale of appreciated stock.

Answer 5

To put it simply during profit taking there are more sellers then buyers & the law of supply and demand takes hold.