Whats the difference between a long-term gain, a short-term gain and a dividend?
Mutual funds make money in three ways. First, they can receive interest on cash or bonds. Second, they can buy a stock and receive dividends from it. Third, they can buy assets and sell them at a gain. Every year, the mutual fund is forced to pay out substantially all of its gains to shareholders from these sources. Interest and dividends are lumped together as the dividend portion of the payment. If the mutual fund had a gain on an asset it held for less than a year, is distributed as a short-term capital gain. Gains on assets held over a year are distributed as long-term capital gains. This payout structure is arranged this way for tax purposes, although it does create some quirks. Taxes are due on all payments made by the mutual fund, even though you may have opted to reinvest the payouts in more shares. So even though you don’t receive cash, you still face the taxes. Long-term gains are taxed at the long-term capital gains rate, regardless of how long you have held the fund. When g
