When you own shares of a mutual fund, you can choose to have the dividend and capital gains distributions paid directly to you in the form of cash or you can choose to have them reinvested into additional shares of the fund itself.

Why Invest in Mutual Funds?
A mutual fund provides diversification through exposure to a multitude of stocks. The reason that owning shares in a mutual fund is recommended over owning a single stock is that an individual stock carries more risk than a mutual fund.