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What Is a Distribution?

A distribution is a cash payment made to investors at settlement time from a mutual fund or REIT out of the income and other proceeds generated by its investments.

How it differs from a dividend

While a stock dividend is paid out of a company's profit, a mutual fund's distribution includes investment income but may also, in some cases, be paid by drawing down part of the fund's own trust assets (its principal). The latter is called a "special distribution" (return of principal), and it differs in nature from profit generated through investment.

What to keep in mind

Evaluating a fund based on the size of its distributions alone can cause investors to overlook cases where the fund is effectively just returning its own principal. It is important to check the breakdown of distributions (the split between ordinary and special distributions) together with the trend in net asset value.

This article is provided for general informational purposes only and does not recommend or solicit the purchase or sale of any specific investment method or security. Final investment decisions are your own responsibility.

Frequently Asked Questions

Are distributions always paid?
No. Whether a distribution is paid, and how much, depends on the fund's investment performance and distribution policy, and in some cases no distribution may be paid, or the amount may be reduced, depending on how the fund is performing. Past distribution history does not guarantee future distributions.
Does a fund with larger distributions necessarily have better investment performance?
Not necessarily. Distributions can include not only income generated by the fund's investments but also a 'special distribution' (return of principal) paid out of the fund's own trust assets, in which case the fund is effectively returning part of the investor's principal.

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