Is it time to buy after a mutual fund falters?

Q: About three years ago I invested in a mutual fund that at the time was selling at $135 a share. Now, stock prices are way down. Should I purchase more of its stock, as it is now selling for $97 a share? That would certainly help my losses when it goes back up.
E.C., via e-mail

A: "We don't know the particulars of this fund, but see how the fund is performing compared to other funds in the same category or industry," says David Bendix, who heads up Bendix Financial Group in Garden City, N.Y. "If the fund is doing well by comparison, and you liked the fund at $135 a share, you should like it even better at $97 a share."

Q: I'm new to investing and confused about the quarterly statements from a mutual fund that I put money into more than a year ago. What performance standard should I look at in order to measure how well the fund has done, the price appreciation of shares, or dividends paid by the fund?
C.R., Los Angeles

A: According to Eric Tyson, in his "Personal Finance For Dummies," look at the "total return" of the fund over the past year.

Total return, he notes, is made up of three factors: dividends, capital gains, and share price changes.

Get the figures from the fund company through its toll-free number, or check the latest annual report.:

Q: When a company issues stock, it receives the proceeds from the sale. If the stock price rises, doesn't the difference accrue to the purchaser, not the company? If so, why would these capital gains be beneficial to the company? Isn't the capital-gains tax, which is lower than the tax on wages, supposed to benefit businesses, and thus the economy?
R.W., North Little Rock, Ark.

A: "Capital gains only kick in when the stock [or some other security or hard asset] is sold," says Mr. Bendix.

But, yes, he says, "the individual benefits from the higher appreciation in the share price and the special tax treatment given capital-gains rates, which are lower than rates on ordinary income and dividends. Company officials and directors who own shares also benefit," he notes.

The company also benefits indirectly, Bendix adds, since the prospect of higher gains can induce more people to invest in new company stock, adding to the company's wealth.

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