Funds Beginner: Introduction to Index Funds

Test your knowledge

Choose wisely. There is only one correct answer to each question.

0%
Keep studying!
Review your answers below to learn more.
1.
Because the securities in index mutual funds are ________, there are few capital gains distributions from them.
Choose wisely. There is only one correct answer.
Not traded frequently. They are kept for long periods because their underlying indexes rarely add or drop securities.
2.
Index funds buy an equal number of shares of each security in their chosen index.
Choose wisely. There is only one correct answer.
False. Many of them buy more or fewer of a particular security.
3.
An investor in index funds may pay little in capital gains taxes because the securities in his or her fund are inexpensive.
Choose wisely. There is only one correct answer.
False. Small amounts of capital gains are explained by the fact that the securities in index funds are rarely sold.
4.
Index mutual funds can outperform the whole market.
Choose wisely. There is only one correct answer.
False. Because an index fund is based on a particular measure of the market, it cannot outperform the whole market.
5.
Index mutual funds try to ________ a particular market index.
Choose wisely. There is only one correct answer.
Perform as well as. Index funds choose the securities in a particular index to match its performance.