What are unrealized gains in mutual funds?

• A. Gains on stocks or bonds that have increased in value but have not yet been sold.
• B. Profits realized after selling.
• C. Dividends received.
• D. Tax credits.

Answer: (A)

Unrealized gains are increases in the value of investments that you haven’t sold yet. In a mutual fund, the fund’s underlying holdings—stocks, bonds, or other assets—can rise in price. That rise shows up as a higher net asset value (NAV) for the fund, but you haven’t cashed out or locked in the profit until you actually sell your shares or the fund passes along realized gains to shareholders. Because you haven’t exited the investment, there’s no actual cash profit to take, and taxes aren’t due on these gains until realization occurs. Dividends are cash income from holdings, not gains from selling, and tax credits aren’t related to gains from investments.