How Mutual Fund Dividends Work? 
Mutual funds distributions are different from the dividends paid by stocks . Stock dividends are usually a distribution of profits . Most mutual funds are set up as trusts and pay tax at the highest rate on any gains -LRB- interest , dividends , capital gains -RRB- that are held in the mutual fund . In order to avoid paying tax at the highest rate the mutual find flows through the gains to unit holders . Some mutual funds also distribute a portion of the original capital . Consequently , the distribution paid by a mutual fund does not simple reflect the dividends paid by the stocks held by the mutual fund . If you have any further questions , or feel that I could be of assistance , please do not hesitate to contact me . 