For a long investment, when a portion of the quantity (for a bond) or net amount (for a stock) of an investment is returned to the buyer. Returns of capital are tax-exempt distributions and reduce cost basis of an investment to a maximum of zero. Below zero, any additional returns of capital are treated as capital gains distributions and are taxable.
The company decides to return a portion of the equity capital in form of cash. It is often a result of Capital Reduction.
A cash distribution resulting from, among other things, the sale of a capital asset, sale of securities, or tax breaks from depreciation.