Distributions

Distributions collectively refer to money that you receive as a result of your investment in a mutual fund. Dividends from common and preferred stocks, interest from bonds, net realized capital gains, return of capital, undistributed capital gains--all of these are distributions. When distributions are issued, you have various options. You can re-invest your distributions, which is the choice that about four-fifths of all investors take. This allows them to obtain more shares automatically. It is possible to re-invest just the income that you receive, and not your capital gains. The other possible option is to have your distributions check mailed to you. Only funds with loads of less than 7.25% can charge commission to re-invest distributions.

As a general rule, it is not a good idea to buy shares of a fund right before distributions are issued. You will receive back a part of your investment immediately, but now it is taxable. Most distributions are issued in December and some in July. Each fund varies, so it is a good idea to check with the particular fund that you are interested in.

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