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Frictional Cost |
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Frictional cost The difference between an index fund return and the index it represents. The typically lower rate of return from the fund results from transactions costs. Frictional Cost The difference between the return on an index fund and the index it tracks. For example, if the return on the S&P 500 for a period of time is 5% and the return on an index fund tracking the S&P 500 is 3%, the frictional cost is 2%. The return on the index fund is nearly always lower than the return on the index itself because of fees, expenses, and other costs associated with managing the fund. A high frictional cost, however, may indicate that the investment company is either charging excessive fees or the fund does not track the index as closely as is claimed. Want to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit the webmaster's page for free fun content. |
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