Clarence - This is the negative side of investing in mutual funds especially in actively traded mutual funds. The capital gains are considered unrealized profits until they are captured by the owners of the fund shares. These gains are the result of the fund manager deciding to sell the stock for some reason and if the stock is trading higher than when the fund initially purchased it, the fund must distribute at least 95% of the gains to shareholders. This gain has been already shown in the NAV, but no tax was due until the gain was "realized". The capital gains distribution is taxable to the fund shareholders unless the fund is owned in a tax-deferred account (IRA, 401k, etc.). There are many benefits to owning mutual funds including diversification and professional management, but being part of fund ownership does result in accepting the tax considerations resulting from fund manager decisions.
The capital gains and income are included in the price of the shares until distributed. Shareholders on record before the "ex-dividend" date are entitled to receive the distribution. Those who buy after that date are not. Shareholders have the option to reinvest the distributions or take them in cash. You're correct in that it seems to be a wash on that date, but the gains have been accumulation since the last distribution.
Clarence - The issue you've discovered becomes even more critical in December as that is when most funds distribute Capital Gains and Dividends. If you buy before the distribution you'll owe taxes on that distribution. However, if you wait until after the distribution, you won't have a tax bill.
The IRS will eventually get their money though. The investor who received the distribution will have a higher basis in the mutual fund and when that investor eventually sells the profit recognized (and tax bill) will be lower than for the investor who invested after the distribution.
Clarence--Is it possible that you opted to reinvest dividends when you purchased the mutual fund? That would account for you seeing no money in your account but more shares. The NAV (price) would already reflect the gains in the account, which is why you'd see no spike in price concurrent with the distribution. You might want to check with your brokerage to see if you have elected to reinvest dividends, and if you'd rather receive cash, change your election.
It is not necessarily considered a profit. It is just one part of total return. Go back to the share price. Disregarding the fluxuation on ex-date, over time, is that share price performing up to your expectations? If it is remaining stable, is your dividend performing up to your expectations? Are the share price combined with your dividend performing up to your expectations?
Different funds have different objectives and reasons for paying dividends. When a mutual fund has profits, it may distribute them as dividends. But typically when a mutual fund has profits, it will reinvest those profits; when it receives dividends, it will pass along those dividends. So if a mutual fund invested in shares of ABC company, and made money when they sold it, they would typically reinvest those profits in other companies. If it owned DEF company that paid a dividend, you might expect to see that dividend passed along to shareholders. Some funds’ objectives are to invest in dividend paying companies or dividend paying financial instruments. Then their dividend paying expectations would be a more important part of their total return than a fund whose objective is growth of capital.