Funds Beginner: Earnings from Mutual Funds

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1.
A mutual fund may assume that you want a dividend reinvestment plan when you open an account.
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True. Reinvestment may be a default if you do not select an option.
2.
Ordinary dividends are earned when a mutual fund sells securities for a profit.
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False. Capital gains dividends are earned in this way, but ordinary dividends are distributions of interest or dividends from the fund's holdings.
3.
How does a mutual fund increase its value?
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It receives the dividends, interest, and capital gains from the securities in its portfolio. The fund then passes these earnings to shareholders.
4.
Total return includes capital gains distributions.
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True. Capital gains distributions are dividends.
5.
Returns of capital in a mutual fund are paid to augment dividends.
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False. Returns of capital may be paid to investors for any of several reasons, such as excess cash, but not to augment dividends.
6.
You earn capital gains from your mutual fund shares when you sell them for a profit.
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True. Capital gains result from selling your assets that have risen in value.