Business, Legal & Accounting Glossary
The expense ratio measures the percentage of a mutual fund’s assets dedicated to running the fund. If the expense ratio is 1%, then each year the total money in the fund is reduced by 1% to pay expenses. The expense ratio comprises administrative costs, like record-keeping and mailing; the 12b-1 distribution fee, used for marketing, distributing, and advertising the fund; and the investment advisory fee, used to pay the manager(s) of the fund. An actively managed stock fund usually has a relatively high expense ratio of perhaps 1.5%, while an indexed stock fund usually has a much lower expense ratio of maybe 0.25%. Also note that, for loaded funds, the expense ratio does not include sales charges. Naturally, a fund with a high expense ratio must perform significantly better than a fund with a low expense ratio to give fundholders the same return. Some high expense ratio funds manage to meet this hurdle, however, and investors shouldn’t automatically avoid high expense ratio funds. A fund’s expense ratio is easily available from websites like Morningstar and Yahoo Finance.
To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.
Definitions for Expense Ratio are sourced/syndicated and enhanced from:
This glossary post was last updated: 9th February, 2020 | 0 Views.