| || InvestHub.com's |
Finance Dictionary and Glossary of Investment Terms
Capital gains distribution
A distribution to the shareholders of a mutual fund out of profits from selling stocks or bonds, that is subject to capital gains taxes for the shareholders.
Distributions that are paid to an investment company's shareholders out of the capital gains of the company's investment portfolio.
A payment to investment company shareholders of profits realized on the sale of its securities. Equity funds usually pay out these amounts once a year, typically in December, while bond funds often include capital gains in their monthly distributions. Many funds allow automatic reinvestment of capital gains, instead of distribution. In general, capital gains distributions reduce the value of the fund. Also, these distributions are taxable income for the recipient, so funds that allow reinvestment instead of distribution are sometimes preferred by investors in high tax brackets.
When mutual funds profit by selling some of the stock in their portfolio, they pass along the gains to their shareholders in the form of a capital gains distribution. Such distributions, which often mean tax trouble for investors, typically occur annually, and the net asset value of the fund falls by the amount of the distribution. Theoretically, this is a wash for investors, except the distribution is taxable.