When you invest in a mutual fund, you become a part owner of a large investment portfolio, along with all the other shareholders of the fund. When you purchase shares, the fund manager invests your funds, along with the money contributed by the other shareholders. If you want to buy shares, you just send the manager your money, and they will issue new shares for you at the most recent price. There are a couple of ways that a mutual fund can make money in its portfolio. A mutual fund can receive dividends from the stocks that it owns.
Dividends are shares of corporate profits paid to the stockholders of public companies.
The fund might have money in the bank that earns interest, or it might receive interest payments from bonds that it owns. These are all sources of income for the fund. Usually they do this twice a year, in a move that's called an income distribution. At the end of the year, a fund makes another kind of distribution, this time from the profits they might make by selling stocks or bonds that have gone up in price. These profits are known as capital gains, and the act of passing them out is called a capital gains distribution.