If you own a mutual fund, you’re considered a shareholder. You can make a profit from your investments in one of two ways: through dividends or capital gains.
Dividends
Dividends are a reward to shareholders for holding onto certain stocks or mutual funds for the long term. Keep in mind, not all stocks offer dividends, and there are several different types. In most cases, dividends are paid quarterly and in cash. You can either pocket the money or reinvest and buy more shares.
Capital Gains
This money is paid out when your investment is sold for a higher price than what you originally paid for it. (That’s why you hear the phrase, "buy low, sell high.") But you don’t get that money until you sell your shares. Until then, your profits (and losses) are merely on paper—not in your pocket.
Just think of it this way: Dividends are paid at least yearly (but often quarterly), while capital gains are paid out when you sell the investment (if you earned a profit).