Introduction to Mutual Fund Earnings
As you invest in mutual funds, you will receive distributions of your funds' earnings in the form of dividends. Some of them may arrive in your mailbox on a regular basis, or you may elect to have them reinvested in additional shares of your funds. You may receive other earnings only when you sell your funds.
Fund dividends may represent distributions of interest and dividends from assets held by your fund, capital gains from the sale of assets, or even a return of principal. Understanding what these distributions are and how they were "earned" is important to monitoring your fund's performance as well as reporting them correctly for income taxes.
Wise investors pay particular attention to these details.