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Capital Gains Distribution
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A capital gains distribution is a distribution of income from a mutual fund to its shareholders. It occurs when the fund sells shares of its holdings for a profit; after this, it then pays the capital gains distribution to its shareholders. Because the capital gains distribution comes from the assets of the mutual fund, it lowers the fund's net asset value. A capital gains distribution usually takes place near the end of the year, in December. The capital gains distribution is taxable to the shareholder unless the account is tax-deferred, for example, in a retirement account. The taxability of the capital gains distribution may come as a shock to new investors who invest in the fund right before the distribution. Mutual fund companies will report a capital gains distribution on form 1099-DIV.
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