When investing in a mutual fund, the income you make is the result of income received from dividend paying stocks, and interest from bonds. If the fund sells a holding whose value has increased, you make money. Even if the fund does not sell that specific holding, the fund itself will still increase in value, and in that way you may also make money. Therefore the value of the shares you hold in the mutual fund will increase in value when the holdings increase in value. Capital gains and income or dividend payments are best reinvested for younger investors.
Retirees often seek the income from dividend distributions to augment their income.
With reinvestment of dividends and capital gains distributions, your money increase at an even greater rate. When you redeem your shares, what you receive is the value of the shares. Income Funds Seek income through the dividends and income provided by stocks and bonds at regular intervals. Income may be reinvested automatically to increase capital appreciation Balanced Funds Capital gains and income earned from a mix of investments from bonds and stocks. Bonds add stability during down and volatile periods, while stocks provide growth.