Funds Beginner: Introduction to Index Funds

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1.
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.
2.
Index mutual funds spread their holdings _______ among the securities in a given index.
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Either evenly or unevenly. Index funds can take either approach.
3.
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.
4.
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.
5.
Index mutual funds try to ________ a particular market index.
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Perform as well as. Index funds choose the securities in a particular index to match its performance.