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Mutual Funds

Capital Gains

When a mutual fund manager sells a stock in the fund, there is a capital gain realization in the fund to the fund holders. Much like when you sell a stock in a single that you may hold, and the stock sale price is higher than the stock purchase price, the increase is a capital gains for the investor. In much the same manner, the fund manager passes the capital gains income to the fund holder, either in the form of a check or distribution, or in the form of a reinvestment in the mutual fund. Again like with dividends, to the extent the investor does not need the income, it is well-advised to reinvest the income as the temptation to cash the check and not save the money is never there, since the check is never issued to the investor.

Mutual Funds
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