Investors typically earn a return from a mutual fund in three
ways:
Income is earned from dividends on stocks and interest on bonds
held in the fund's portfolio. A fund pays out nearly all of the
income it receives over the year to fund owners in the form of a
distribution. Funds often give investors a choice either to receive
a check for distributions or to reinvest the earnings and get more
shares.
If the fund sells securities that have increased in price, the
fund has a capital gain. Most funds also pass on these gains to
investors in a distribution.
If fund holdings increase in price but are not sold by the fund
manager, the fund's shares increase in price. You can then sell
your mutual fund shares for a profit in the market.