Funds Beginner: Introduction to Index Funds

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1.
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.
2.
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.
3.
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.
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.