Mutual Fund Distributions from Earnings

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Mutual Fund Distributions from Earnings

When investors speak of mutual funds earning money, they are referring to the earnings from the securities and other instruments a mutual fund holds. A mutual fund is an investment company that invests in a pool of securities. The fund "earns" money when the underlying securities earn money. When an individual stock earns a dividend or when a bond pays interest, the fund passes those earnings on to its shareholders. When a fund sells securities for a profit, it passes any profit on that to its shareholders. As long as you own shares, you are entitled to participate in the fund’s potential earnings and profits.

Mutual funds can pass earnings to you in two ways—through dividends paid in cash (or reinvested in additional shares) and through capital gains if you sell your fund shares for more than you paid for them.