Capital Gains Distribution
Capital gains distribution refers to the payment made to mutual fund shareholders from the profits realized by the fund from the sale of securities within the fund’s portfolio. These distributions typically occur at the end of the year and are subject to capital gains tax. Capital gains distributions can consist of short-term or long-term gains, depending on how long the fund held the securities before being sold.
Example
A mutual fund might sell stocks at a profit and distribute the gains to shareholders at the end of the year. These capital gains distributions are taxable for the shareholders, regardless of whether they take the cash or reinvest it.
Key points
• Capital gains distributions are payments made to mutual fund shareholders from profits on the sale of securities.
• Distributions can be short-term or long-term and are subject to taxes.
• Investors must pay taxes on distributions even if they reinvest them back into the fund.
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