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expense ratio |
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Expense ratio The percentage of the assets that are spent to run a mutual fund (as of the last annual statement). This includes expenses such as management and advisory fees, overhead costs, and 12b-1 (distribution and advertising) fees. The expense ratio does not include brokerage costs for trading the portfolio, although these are reported as a percentage of assets to the SEC by the funds in a Statement of Additional Information (SAI). The SAI is available to shareholders on request. Neither the expense ratio nor the SAI includes the transactions costs of spreads, normally incurred in unlisted securities and foreign stocks. These two costs can add significantly to the reported expenses of a fund. The expense ratio is often termed an Operating Expense Ratio (OER).
Expense Ratio A measure of a mutual fund's costs of operation as a percentage of its total assets. It is calculated by dividing the fund's total costs by its total assets. As the total costs include things like management fees and commissions, the expense ratio is important to determining the actual return on a fund. For example, a mutual fund may have a 10% return per year, which is quite high; however, if the total expense ratio is 8%, this means that shareholders only receive 2% of the return. It is also called the total expense ratio or the management expense ratio. Expense ratio. An expense ratio is the percentage of a mutual fund's or variable annuity's total assets deducted to cover operating and management expenses. Those expenses include employee salaries, custodial and transfer fees, distribution, marketing, and other costs of offering the fund or contract. However, they don't cover trading costs or commissions. For example, if you own shares in a fund with a 1.25% expense ratio, your annual share is $1.25 for every $100 in your account, or $12.50 on an account valued at $1,000. Expense ratios vary from one fund company to another and among different types of funds. Typically, international equity funds have among the highest expense ratios, and index funds among the lowest. Similar differences in expense ratios are characteristic of different variable annuity investment accounts. expense ratio A comparison of the operating expenses to potential gross income of a property in order to obtain a ratio that can be compared to other similar properties. In this manner, the owner may receive advance warning that rents are below market or expenses are too high. In addition, a potential buyer familiar with the ratios for similar properties may be forewarned if there is an unusually small ratio in a property under consideration.This could be the result of a seller not spending the proper sums to maintain and manage property, a seller performing its own maintenance without booking any expenses that might be incurred after the buyer takes over the property,or the seller omitting expenses. Purchasers interested in buying self-managed and maintained property will generally estimate a reasonable maintenance and management expense, and then reevaluate the estimated net income and the asking price in light of that information. Expense Ratio What Does Expense Ratio Mean? The amount it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual calculation in which a fund's operating expenses are divided by the average dollar value of its assets under management. Operating expenses are taken out of a fund's assets and lower the return to a fund's investors. Also known as management expense ratio (MER). Investopedia explains Expense Ratio Depending on the type of fund, operating expenses vary widely. The largest component of operating expenses is the fee paid to a fund's investment manager/advisor. Other costs include recordkeeping, custodial services, taxes, legal expenses, and accounting and auditing fees. Some funds have a marketing cost referred to as a 12b-1 fee, which also would be included in operating expenses. A fund's trading activity— the buying and selling of portfolio securities—is not included in the calculation of the expense ratio. Costs associated with mutual funds but not included in operating expenses are loads and redemption fees, which, if they apply, are paid directly by fund investors. Related Terms: How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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| On average, an investor pays 1% to 2% in expense ratio fees, which include management fees, 12b-1 fees, and fees for general operating costs such as fund Websites, semiannual reports, and 800-numbers. The health care expense ratio at the public, for profit companies decreased by 30 basis points in 2005 but was a full percentage point higher than the health care expense ratio in 2003. The increase in the combined ratio reflected the higher net expense ratio which more than offset the decline in the loss ratio. |
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