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Funds 103: Earnings from Mutual Funds

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1.
Reinvested dividends are tax-free because they don't reach the investor.
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False. As long as they are earned, they will be taxed no matter where they end up.
2.
Returns of capital in a mutual fund are paid to augment dividends.
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False. Returns of capital may be paid to investors for any of several reasons, such as excess cash, but not to augment dividends.
3.
Mutual fund dividends are passed to investors from ______.
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The earnings of the securities in a fund. The fund passes earnings from its portfolio in the form of dividends to its shareholders.
4.
Total return includes capital gains distributions.
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True. Capital gains distributions are dividends.
5.
How does a mutual fund increase its value?
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It receives the dividends, interest, and capital gains from the securities in its portfolio. The fund then passes these earnings to shareholders.
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?
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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.