When the fund then sells the security, the fund has a capital gain. These capital gains will be taxed each year they are received. This also is a capital gain. However, you will not be taxed on this capital gain until the year you sell the fund. Objectives of Mutual Funds Income.
Income funds focus on dividends and interest that provide income to investors.
This is a relatively steady source of money, but the fund's NAV can still go up and down. Growth funds focus on increasing the value of the principal or amount invested through capital gains and net asset values. Growth funds are usually more risky but offer greater potential return. Stability funds focus on protecting the amount invested from loss so the fund's NAV does not go down. This is the least risky type of fund but may make the least amount of money.