Capital gain is simply the profit on your investment when you sell your mutual fund units. It is the difference between the market value of your mutual fund units at the time of sale and the cost of such units. The gains come in from the appreciation in your fund’s NAV.
Capital gains can be short term or long term, depending on how long you hold the fund units. Holding period is the number of years between when you first bought a unit and sold it. What is considered short-term and long-term holding varies between equity and debt/gold mutual funds.