No. Considering the above example, investors still have $10 in value — $8 in the fund’s NAV, and $2 in their pockets or reinvested in the fund. And if they do automatically reinvest their capital gain distributions, it buys them additional fund shares at the new, lower price of $8. These additional shares compensate for the drop in the NAV, so the total value of their accounts doesn’t change. (Of course, if there is a decline in the market at the same time, they may still see a drop in the total value of their accounts.)
Example: Let’s say there are 100 shares in an investor’s account. At the NAV price of $10 per share, the account value is $1,000. If the fund pays a capital gain distribution of $2 per share, the NAV drops to $8, and the original 100 shares are now worth $800. However, if capital gain distributions are reinvested, they will automatically buy $200 worth of shares — at $8 per share. The investor can add 25 shares to his or her account, which now contains 125 shares worth $8 each. That’s a total of $1,000, which was the original account value before the capital gain distribution was paid.