Distribution Definition

The business definition of distribution most often means paying assets out of a fund, account, or security to an individual. This guide explains this definition in greater detail, including how distributions can help people prepare themselves (and their companies) for retirement and beyond.

What is distribution in business?

In this article, “distribution in business” refers to the disbursement of assets from a fund, account, or individual security to an investor or individual beneficiary.

Types of Distributions

There are three main types of distributions that investors should understand. Some of the most relevant types of distributions include:

• When a mutual fund distributes capital gains or income to investors
• When a public company distributes interest or returns capital to shareholders
• When a retirement account owner takes distributions in the form of taxable income

The next section discusses these distributions in greater detail.

Understanding Distributions

Here’s a quick look at a variety of different distributions and how they work.

Mutual Fund Distributions

Mutual fund distributions represent capital gains and dividend or interest income generated by the fund for its investors during a calendar year. One example is net capital gains distributions that come from profits on the sale of a mutual fund’s holdings. A capital gains distribution is a cash payment made by a mutual fund’s owner. If a mutual fund holds a capital asset for more than one year and then sells it, the fund usually passes on the profit as a capital gains distribution. For many investors, this helps a great deal with their taxes.

Securities Distributions

With securities like stocks or bonds, distributions come in the form of payment interest, principal, or dividends to shareholders or bondholders. Corporations can reinvest their profits back into their business. However, distribution advantages include a corporation’s ability to pay a portion of the profit to its shareholders in the form of a dividend. 

Retirement Account Distributions

Retirement account distributions fall into two categories.

• Distributions before age 59½ are subject to an IRS penalty and ordinary income tax. 
• Distributions made at or after age 59½ are made without penalty, but the account holder still pays ordinary income taxes at their current tax bracket.

Nearly all retirement plans require the account holder to begin withdrawing funds once they reach the age of 72. The amount a person needs to deduct from their account depends on their age and the value of the funds in the account. Interested investors can learn more about required minimum distributions (RMDs) from the IRS guidelines.

Distributions: A Summary

• A distribution generally refers to the disbursement of assets from a fund, account, or individual security to an investor.
• Mutual fund distributions usually consist of net capital gains made from the profitable sale of portfolio assets. 
• With securities, like stocks or bonds, a distribution is a payment of interest, principal, or dividend by the issuer of the security to investors.
• Retirement accounts carry required minimum distributions — mandatory withdrawals after the account holder reaches a certain age.

Recommended articles

• Dividend Definition
• Receiver Definition
• LLC Profit Distribution
• Share Definition
• How to Pay Dividends

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