Nice answer by netwrangler. I would just add that most of these distributions take place in December. So if you're considering purchasing a mutual fund at the end of the year, first check to see when that fund makes it's distribution and what the estimated distribution amount will be (you should be able to find this info on the fund family's website). If the distribution is significant and, say, only 2 weeks away or something, I think it's smart to wait until after the distribution before buying. You don't want to pay taxes on a year's worth of gains that you didn't partake in.