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 a bond pays interest, the fund passes those earnings on to its shareholders. When a fund sells securities for a profit, it passes on that profit to its shareholders. As long as you own shares, you are entitled to participate in the fund's earnings and profits.

Mutual funds can pass earnings to you in two ways—through dividends and through capital gains.

On the following screens, we will discuss types of earnings in more detail. First, we will discuss dividends.