Question

The basic advantage of index funds over actively managed mutual funds is that:

		Their operating fees are lower.
		They will always yield a profit, however small.
		All are correct.
		They have a higher likelihood of outperforming the market.

Answer 1

The basic advantage of index funds over actively managed mutual funds is that their fees are lower than that of actively managed funds.

They have a higher likelihood of outperforming any single investment not the market.

Index funds are not fixed-income instrument s and derive their value from the performance of the constituent securities, Thus, there is no guarantee that the funds will generate some profit, hence, the statement that they will always yield a profit, however small, is incorrect.

The correct answer is option A.