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SIE: Investment Companies & Packaged Products
SIE practice questionmediumMutual Funds

Which investor benefit is provided by mutual fund automatic reinvestment of dividends?

  1. AHigher management fees
  2. BExemption from paying taxes on the dividends received
  3. CCompounding returns through purchasing more fund shares✓ Correct answer
  4. DGuaranteed principal protection
Explanation

Why CCompounding 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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