Beginner's Guide to Mutual Fund Dividends

Understanding how mutual fund dividends work is important for those who are just getting started investing in mutual funds. Mutual fund dividends can provide you with a valuable source of income and portfolio growth. Here are the basics of mutual fund dividends and how they work.

Mutual Fund Dividends

Mutual funds create dividends for investors in a few different ways. For example, many mutual funds will invest in stocks, as they are a main form of investment. When stocks pay dividends to their shareholders, they will pay the mutual fund a certain amount of money in dividends. Since the mutual fund owns several thousand shares of stock, the fund managers will take all of the dividends and divide them equally among the shareholders in the fund. Some mutual funds also invest in bonds. Bonds will typically pay interest once a month. This interest is then passed onto the shareholders in the form of dividends.

Dividend Considerations

When you receive dividends from a mutual fund, you will have two different options. You can choose to keep the dividends as income or reinvest them into the fund. Regardless of which method you choose, you will have to pay income taxes on the dividends that you received.

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