Multiple choice

Which of the following is untrue of an automatic reinvestment plan?

  1. The plan allows for automatic reinvestment of all income and capital gains

  2. Automatic reinvestment allows for accumulation of additional units of the fund

  3. The major benefit of automatic reinvestment is compounding

  4. Its benefit is often lost on account of the heavy load charge on the reinvestment
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Automatic reinvestment plans typically do NOT charge load fees on reinvested distributions. Most mutual funds allow reinvestment of dividends and capital gains without additional load charges, which is precisely why the compounding benefit is not lost. The statement claiming heavy load charges on reinvestment is therefore false.

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