A mutual fund's expense ratio is the total amount of money the fund used for management and operation. Expense ratios come out of shareholder's returns, so a high expense ratio can really hurt you even if your total returns are fair. The expense ratio must be stated in the fund's prospectus; however, to measure a fund's total expense ratio you can use a simple formula.
Look for a section called 'Management Expense Ratio' or 'Operating Expense Ratio' in your mutual fund prospectus.
2
Find the expense table. It may be called a 'Fee Table'.
3
Read the sections both for shareholder expenses, which are fees you may not have to pay with other mutual funds, and annual operating expenses.
4
Determine if the fees are acceptable to you. If the fees seem too high, try another fund.
Measure Your Fund's Total Expense Ratio
1
Look for the section dealing with fees in your prospectus. It may be called a 'Fee Table'.
2
Find the total fund costs. This may be expressed as a percentage.
3
Find the total fund assets. You may find it in the annual return table, which should be in the first few pages of your prospectus.
4
Divide the total fund costs by the total fund assets. The number you get will be your fund's total expense ratio.
Tips & Warnings
Your mutual fund must state its expense ratio in its prospectus.
Management fees average between .5% and 1.5%.
You may be able to find your fund's total expense ratio in your prospectus as well as the MER.
You can find the expense ratio in your mutual fund's prospectus.
The expense ratio may be called an 'Operating Expense Ratio' or 'Management Expense Ratio' in your report.
Management expense ratios (MER) differ depending on how active your fund manager is. For example, an index fund will have a lower MER than an actively managed fund.
Your total expense ratio may vary from year to year. Do not assume it will remain the same. Read your annual report every year.
Both the total expense ratio and the management expense ratio affect shareholders. The higher the ratio, the lower your returns.
The transaction costs of overseas investments and unlisted securities do not have to be reported in the prospectus or the SAI. If you believe you have additional expenses, ask your broker or fund manager.
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