Funds Beginner: Introduction to Index Funds

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1.
Index mutual funds can outperform the whole market.
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False. Because an index fund is based on a particular measure of the market, it cannot outperform the whole market.
2.
Why are management expenses in index funds low?
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All of the above. All of these explain why management expenses are low.
3.
The fact that index funds are actively managed accounts for their relatively low management expenses.
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False. Active management would increase management expenses. Computers manage most index funds, thus making them passively managed.
4.
An investor in index funds may pay little in capital gains taxes because the securities in his or her fund are inexpensive.
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False. Small amounts of capital gains are explained by the fact that the securities in index funds are rarely sold.
5.
What accounts for the fact that different mutual funds that use the same index tend to perform differently?
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They do not allocate their securities in the same way. Different funds buy more or less of each security than other funds do.