Funds Beginner: Earnings from Mutual Funds

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1.
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.
2.
A capital gain on a share held for five years will be taxed at a lower rate than a share held for four months.
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True. Once you have held a share for more than one year, your capital gains tax drops.
3.
The number of mutual fund shares that investors own determines how much of a dividend is passed on to them.
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True. Dividend payments vary according to number of shares owned.
4.
Total return includes capital gains distributions.
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True. Capital gains distributions are dividends.
5.
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.
6.
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.