ExpertGlossary

When mutual fund companies sell investments that have increased in value, the profits, or capital gains, are passed on to their shareholders as capital gains distributions.

These distributions are made on a regular schedule, often at the end of the year and are taxable at your regular rate unless the funds are held in a tax-deferred or tax-free account.

Most funds offer the option of automatically reinvesting all or part of your capital gains distributions to buy more shares.