You receive capital gain distributions when the fund sells some of its assets and then passes along a portion to you. This distribution that you get is regarded by the IRS as a capital gain, not as ordinary dividends such as the interest you get from your bank account. It is important to separate capital gain distributions from ordinary dividends because capital gains are taxed more favourably. See also "Ordinary Dividends."
A payment to fund profits (long-term gains) realised on the sale of the fund's securities. The net asset value of the fund is reduced by the amount of the distribution. For equity funds, these amounts are usually paid out once a year, in December. Fixed-income funds may include capital gains in their monthly distributions.
Payments to mutual fund shareholders of net gains realized on the sale of the fund's portfolio securities. Long-term gains are earned on securities held in the portfolio more than one year. Short-term gains, on the sale of securities held less than one year, are treated as ordinary dividend income for tax purposes.