If you own shares in a mutual fund in a taxable account, then whenever the mutual fund does a quarterly or annual distribution of dividends, interest, or capital gains you will receive a 1099 at the end of the year. You will then include that 1099 numbers in your income tax calculations. Depending on your income situation, and the nature of those distributions, you may owe taxes. It can be nothing if the numbers are small enough, or a lot depending on your situation. This happens even if you don't sell any shares during the year. It doesn't depend on if you reinvest the distributions, though if you do then the number of shares will grow over time.
Now if you owned the shares in a retirement account such as a traditional IRA or pre-tax 401(K), then the taxes are deferred until you start removing money from the retirement account. These dividends, interest, and capitals gains will be mentioned in the quarterly/yearly statements, but they don't have any tax impact until much later.
If the shares are owned in a Roth IRA or Roth 401(k) then the dividends, interest, and taxable gains distributed will never have a tax impact.
In a comment to another answer you said:
"I just talked to the mutual department of an brokerage house. The
representative first said we do not have to pay tax on the dividend or
the capital gain of the mutual fund. And then he said it depends. And
then I ask him, say, if it is this FSELX fund, then do we pay tax. And
then he says need to consult a tax professional (this is the standard
answers every where)..."
The answer is it depends. The shares in the mutual fund can be owned in:
- Taxable account
- Traditional IRA
- Roth IRA
- Pre-tax 401(k)
- Post-tax 401(k)
- Roth 401(k)
- 529 account
It can even be owned by another Mutual Fund or ETF which could also be owned by in one of those account types.