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1.
Which of the following is not a dividend?
The sale of a mutual fund share. When individual shareholders sell their shares, these shares are not dividends.
2.
Returns of capital are generally taxed at your ordinary income tax rate.
False. They are generally not taxed at all. However, if the return of capital exceeds the amount of after-tax dollars invested (basis), then they can be taxed as a capital gain.
3.
Mutual funds earn money when investors buy and sell their shares.
False. Mutual funds earn money when their underlying securities earn money.
4.
Because it is a sum, a total return is positive.
False. If there has been a substantial loss in net asset value, the sum may be negative.
5.
Reinvested dividends are tax-free because they don't reach the investor.
False. As long as they are earned, they will be taxed no matter where they end up.
6.
Imagine that a share of your Fund X rises from 20 dollars per share to 30 dollars per share. How much of a capital gain have you made on it?
10 dollars, but only if you have sold it. Until they have been sold, shares that rise in price will only be profits on paper.
