How Does A Mutual Fund Pay You

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Mutual Fund A mutual fund is an investment vehicle made up of a pool of moneys collected from many investors for the purpose of investing in securities such as stocks bonds money market

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Mutual funds a type of investment that pools together money from many investors then uses that money to mutually invest in stocks bonds or other assets Mutual funds are typically

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How do mutual funds work Learn about the tax on mutual funds mutual fund prices and how mutual funds make money A mutual fund is a convenient and simple way for investors to help diversify their investments at generally low cost but it takes a fair degree of complexity to deliver such a simple solution

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Dividend payments are based on income accrued by the fund s holdings within a given period of time Dividends and interest received from one of the fund s holdings are held by the fund prior to being eventually distributed to shareholders

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By purchasing a mutual fund you own a piece of the fund s overall portfolio For example if a mutual fund owns 100 stocks and you invest 1 000 in that fund you own about 10 worth of each

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Thus mutual funds can pay interest dividends and or capital gains via distributions which will determine the amount of tax you have to pay A bond fund for instance will typically pay

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Diversification Mutual funds let you access a wide mix of asset classes including domestic and international stocks bonds and commodities Low costs Because a mutual fund buys and sells large amounts of securities at a time its transaction costs are typically lower than what you would pay as an individual investor Convenience

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Stock and bond funds make money in 2 ways Income When an underlying security that the fund invests in pays interest or dividends the fund is required to distribute those earnings to its shareholders Capital gains When a fund sells an underlying security at a price higher than what was initially paid the fund makes a profit

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Mutual funds are required to pass on all net income to shareholders in order to avoid taxation so interest generated by debt securities such as bonds bills and notes is distributed to shareholders via dividend payments Unlike bond interest stock dividends are not guaranteed