Capital Gains Distribution

What is a 'Capital Gains Distribution'

A capital gains distribution is the payment of proceeds prompted by a fund manager's liquidation of underlying stocks and securities in a mutual fund. Capital gains distribution occurs when a mutual fund manager liquidates underlying positions that have made gains since they were added to the fund. Capital gains distributions will be taxed as capital gains to the person receiving the distribution.

BREAKING DOWN 'Capital Gains Distribution'

Holders of mutual fund shares will be required to pay capital gains tax on any capital gains distributions made by the funds they own. Before 1986, all mutual fund shareholders were charged long-term capital gains on distributions, regardless of how long they'd held the funds. With the passing of the 1986 Tax Reform Act, shareholders now pay long- or short-term capital gains tax based on the time they've owned the fund.

RELATED TERMS
  1. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
  2. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
  3. Capital Gains Treatment

    The specific taxes assessed on investment capital gains as determined ...
  4. Capital Gains Tax

    A type of tax levied on capital gains incurred by individuals ...
  5. Distribution

    1. When trading volume is higher than that of the previous day ...
  6. Mutual Fund Yield

    Dividend payments divided by the value of a mutual fund’s shares. ...
Related Articles
  1. Financial Advisors

    How to Navigate Taxable Mutual Fund Distributions

    It's almost time for year-end capital gains distributions for mutual funds. Here's how to monitor them and minimize their tax impact.
  2. Professionals

    Mutual Fund Characteristics and Taxation

    FINRA/NASAA Series 66 Section 2 - Mutual Fund Characteristics and Taxation. In this section mutual fund taxation and distribution.
  3. Professionals

    Mutual Fund Benefits and Types

    NASAA Series 65: Section 9 Mutual Fund Benefits and Types. In this section types of mutual funds and their benefits.
  4. Mutual Funds & ETFs

    How Tax-Efficient Is Your Mutual Fund?

    Learn about factors that influence the tax-efficiency of your mutual fund, how income from your investment is taxed and what to look for when choosing a fund.
  5. Professionals

    Mutual Fund Distributions

    Mutual Fund Distributions
  6. Investing

    Advising FAs: Explaining Mutual Funds to a Client

    More than 80 million people, or half of the households in America, invest in mutual funds. No matter what type of investor you are, there is bound to be a mutual fund that fits your style.
  7. Financial Advisors

    After Poor Performance, Now a Mutual Fund Tax Hit?

    If the performance of mutual funds in 2014 wasn't bad enough, here comes a tax hit from liquidations.
  8. Mutual Funds & ETFs

    Mutual Funds: What Are They?

    The Definition A mutual fund is nothing more than a collection of stocks and/or bonds. You can think of a mutual fund as a company that brings together a group of people and invests their money ...
  9. Mutual Funds & ETFs

    The Basics of Income Tax on Mutual Funds

    Learn about the basics of income tax on mutual funds, including what types of income may be subject to the capital gains tax rate.
  10. Mutual Funds & ETFs

    Mutual Funds

    Mutual Funds introduction
RELATED FAQS
  1. How often do mutual funds pay capital gains?

    Find out how often mutual funds distribute capital gains income, including the basics of how mutual funds work and why frequent ... Read Answer >>
  2. Do mutual fund companies pay taxes?

    Learn how mutual funds are incorporated as regulated investment companies and are exempt from paying taxes under certain ... Read Answer >>
  3. Do mutual funds pay interest?

    Find out how and why some mutual funds pay interest, and which types of funds make regular dividend distributions to shareholders ... Read Answer >>
  4. Do mutual funds pay dividends or interest?

    Learn how and why mutual funds pay interest or dividends, including the different funds and which types generate each type ... Read Answer >>
  5. How do I calculate the loan-to-value ratio using Excel?

    Learn what a mutual fund and a money market fund are, and understand the differences between each and how they serve various ... Read Answer >>
  6. Do mutual funds pay dividends?

    Find out when mutual funds pay dividends and how these distributions are generated, including what types of assets are included ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center