SIE practice questionmediumMutual Funds
Which investor benefit is provided by mutual fund automatic reinvestment of dividends?
- AHigher management fees
- BExemption from paying taxes on the dividends received
- CCompounding returns through purchasing more fund shares✓ Correct answer
- DGuaranteed principal protection
Explanation
Why C — Compounding returns through purchasing more fund shares
Automatic dividend reinvestment allows for compounding, but dividends are still taxable. It does not raise fees or ensure principal protection.
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