So, a fund's performance takes into account the expense ratio and the 12b-1 fees but not sales charges.ġ2b-1 fees are included in the expense ratio and the expense ratio is included in a fund's performance. A fund's performance is based on the changes in its NAV from period to period. Simply put, the NAV is the fund's share price or what the fund is worth per share on any given day. NAV is the value of a fund after all costs, divided by the total number of outstanding shares. 12b-1 fees are included in the expense ratio.įund expenses are reflected in the funds NAV. 25% to 1.00% of assets per year but occasionally it is a flat amount." All 12b-1 fees are something of a hidden charge, because they are taken out of the NAV (Net Asset Value). 12b-1 fees are usually set on a percentage basis in the range of. The expense ratio is useful because it shows the actual amount that a fund takes out of its assets each year to cover its expenses."Ī 12b-1 fee is the "maximum annual charge deducted from fund assets to pay for distribution and marketing costs.
Sales charges are not included in the expense ratio. defines expense ratio as, "the percentage of a fund's assets paid for operating expenses and management fees, including 12b-1, administrative fees, and all other asset-based costs incurred by the fund, except brokerage costs. What is an expense ratio in a mutual fund? Morningstar, Inc. Then, we will take a brief look at some standard measures that should be the main focus of your analysis. In order to better understand the place of an expense ratio, lets look at what it is and where it fits in an analysis. Putting the value of expense ratios in context with other financial measures is critical when performing an analysis to select mutual funds. Has the focus on expense ratios caused the public to lose focus of more critical financial measures, such as performance? I believe that all the media and advisor focus that has been given to expense ratios has inadvertently caused a misplaced emphasis by the public. Almost every individual or plan trustee I have met, not only asks about expense ratios, but focuses on them, as one of their main criteria for selection of mutual funds. 401k plan trustees are cautioned to shop for low expense ratios as part of their fiduciary responsibility to their plan participants.Īfter more than twenty years in the investment advisory business, I am still amazed by the amount of emphasis individual investors and 401k plan trustees put on a mutual fund's expense ratio. Many financial advisors and journal articles have focused on the expense ratios in mutual funds. You may contact Chuck at 630.834.7880 or email him at has been a lot of media hoopla about expense ratios.
EXPENSE RATIO PROFESSIONAL
Results One has developed a proprietary set of risk-adjusted investment models, allowing every 401k participant to benefit from professional management. Rizzo, EA, CFP®, Director of Results One Financial, LLC - For over 20 years, Chuck has provided fee-only investment management for individuals and retirement plans.
Mutual Fund Expense Ratios & 12b-1 Fees - How Much Attention Should They Get?īy Charles L.
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