To avoid paying taxes themselves, mutual fund companies pay almost all capital gains and income to shareholders. When these people receive the gains and income, they, not the mutual fund company, owe taxes on the amounts.
Most mutual fund companies pay distributions once or twice a year. Although they buy and sell securities throughout the year and stocks pay dividends at different times during the year, the cost of bookkeeping and mailing statements to shareholders limits the frequency of distributions.
The two dates associated with each distribution are:
Distributions can be paid using cash, i.e., by sending a check to the shareholder. Most mutual fund companies give the option of using this cash to purchase additional mutual fund shares. Even though the shareholder would receive only a statement listing the reinvestment, he still owes taxes on these reinvested distributions.