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Funds 101: Mutual Fund Basics

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1.
Which party hands out dividends to mutual fund investors?
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The transfer agent. If you chose "distributor," remember that this party distributes shares, not dividends.
2.
The holdings and sectors within a mutual fund always rise and fall together.
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False. Due to the diversification of mutual fund holdings, some positions may be positive while others may not be.
3.
Diversification spreads risk among several different investments.
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True. Each investment has its own risk profile.
4.
Mutual funds will require a minimum purchase amount; however, that minimum can be waived.
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True. Some mutual funds will waive the minimum required investment amount for a number of different reasons, such as setting up an automatic investment plan with them. Refer to the fund's prospectus for additional details on such waivers.
5.
A mutual fund is a(n) _______.
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Package of several types of securities. Although some mutual funds invest only in stocks or bonds, mutual funds as a whole are open to several types of securities.