What type of funds are typically involved in capital gain distributions?

Capital gain distributions typically occur within mutual funds and real estate investment trusts (REITs) as these entities frequently buy and sell securities or real estate holdings throughout the year. When these investments appreciate in value, and the fund realizes profits from selling these assets, they distribute a portion of these gains to their shareholders.

Mutual funds pool money from many investors to create a diversified portfolio, often resulting in capital gains that are passed on to investors as distributions. Similarly, REITs, which invest in income-producing real estate, also realize capital gains when they sell properties at a profit and return those gains to their shareholders.

In contrast, hedge funds are typically structured differently and often re-invest profits rather than distributing them to investors. Pension funds generally focus on long-term investment strategies and may not engage in frequent buying or selling that results in capital gain distributions. Government bonds provide interest income and do not generate capital gains through asset sales. Therefore, the correct answer highlights the entities that are most directly engaged in capital gain distributions through their investment activities.