Why, When, and How do Mutual Funds Pay Distributions? (2024)

To avoid paying taxes themselves, mutual fund companies pay almost allcapital gains and income to shareholders. When these people receivethe gains and income, they, not the mutual fund company, owe taxes onthe amounts.

Most mutual fund companies pay distributions once or twice a year.Although they buy and sell securities throughout the year and stockspay dividends at different times during the year, the cost ofbookkeeping and mailing statements to shareholders limits thefrequency of distributions.

The two dates associated with each distribution are:

record date

is the date when the mutual fund company recordswho owns how many shares.

payable date

is the date when the distribution is actuallygiven to the shareholders.

Distributions can be paid using cash, i.e., by sending a check to theshareholder. Most mutual fund companies give the option of using thiscash to purchase additional mutual fund shares. Even though theshareholder would receive only a statement listing the reinvestment,he still owes taxes on these reinvested distributions.