Finance: What is Capital Gains Distribution?

What is Capital Gains Distribution? Owners of equity based mutual funds which are successful in investing will inevitably be the recipients of their prorated portion of trading profits in the form of capital gains distributions. These gains are subject to capital gains taxes, and may be in the form of cash or additional shares.

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Transcript

00:23

on your investment and because Google paid cash not stock in acquiring

00:27

whatever.com on your books the gain was realized ie turned into cash so then the

00:34

mutual fund has to distribute to you that capital gains ie the cash it [Capital gains definition appears]

00:39

realized in selling the company to the kindly loving people at Google whose

00:45

motto is do only a little bit of evil right so one more time for the people in

00:49

the back how does this capital gains distribution thing work well the fund

00:53

manager looking out for your mutual fund may sell or buy some of the stocks or [Fund manager appears with stocks and bonds]

00:58

bonds in your fund if she sells and makes a profit well then that profit or

01:03

the proportionate gains part of it has to be distributed to the fund holder and

01:08

that's you and then of course you got to pay taxes

01:11

on that distribution if your fund is held in a normal account like it's in a

01:15

401k or an IRA you'll pay taxes on it later but not right away and if you own

01:19

it personally well you'll pay at that year yeah Uncle Sam always needs to get [Uncle Sam appears]

01:23

his cut when there's capital gains distribution if he doesn't he gets angry

01:27

and you know you wouldn't like Uncle Sam when he's angry [Uncle Sam turns into Hulk]