Mutual Funds Shareholders are entitled to their respective share of a Fund’s net income and capital gains on its investments. A Fund is required to pass through substantially all of its earnings along to its investors as distributions. Generally, Funds distribute capital gains, if any, annually.
When a Fund earns dividends from stocks and distributes these earnings to shareholders, it is called a dividend distribution.
A Fund realizes capital gains when it sells securities for a higher price than it paid. When net long-term capital gains are distributed to shareholders, it is called a capital gain distribution.
Net short-term capital gains are considered ordinary income and are included in dividend distributions.
On the day the distribution is declared, the amount of the distribution is deducted from fund assets and calculated as a per share amount to be passed through to shareholders. On this day, the fund's share price will decline by the amount of the distribution (plus or minus any share price change related to market activity).