How Do Mutual Funds Generate Returns for Investors?

Mutual funds provide returns to investors in two main ways: dividends and capital gains.

• Dividends are payments made to investors when the companies in the fund’s portfolio earn profits and decide to distribute some of those earnings. These dividends are distributed proportionally based on the number of mutual fund units you hold.
• Capital gains occur when you sell a security within the mutual fund at a price higher than its purchase price, resulting in a profit.

Both dividends and capital gains received from mutual funds are subject to taxation.