When an investor sells a stock for more than the purchase price, the investor experiences a capital gain (it is simpler to call it a profit, but let’s stick to some technical terms for a minute). For example, if you bought Amazon at $2,000 back in July of 2019 and sold it for $3,000 in November of 2020, the capital gain would be $1,000.
Mutual funds operate in much the same way, although it gets a little more complicated. When a mutual fund sells a stock for a profit, it too receives a capital gain and is required by law to pay most of the gain to its shareholders in the form of distributions – after deducting the fund’s operating expenses.