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Simple English definitions for legal terms
capital-gain distribution
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A quick definition of capital-gain distribution:
Capital-gain distribution refers to a type of dividend that is paid out to shareholders when a mutual fund or company sells an investment for a profit. This profit is then distributed to shareholders in the form of a dividend. Capital-gain dividends are a type of income that is subject to capital-gains tax. It is important to note that capital-gain distributions are different from regular dividends, which are paid out of a company's earnings.
A more thorough explanation:
A capital-gain distribution is a type of dividend paid out to shareholders of a mutual fund or exchange-traded fund (ETF) that is generated from the sale of securities within the fund's portfolio. This distribution is taxed at the capital gains tax rate.
For example, if a mutual fund sells some of its holdings for a profit, it may distribute those profits to its shareholders in the form of a capital-gain distribution. This distribution is separate from any regular dividends the fund may pay out.
Capital-gain distributions can be a good source of income for investors, but it's important to understand the tax implications and to consider the overall performance of the fund before investing.