Funds Beginner: Introduction to Index Funds

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1.
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.
2.
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.
3.
Index funds buy an equal number of shares of each security in their chosen index.
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False. Many of them buy more or fewer of a particular security.
4.
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.
5.
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.