How to Calculate the Income & Expense Ratio for Mutual Funds Schemes
Investing in mutual funds can be an excellent way to save for a comfortable retirement or other long-term goal, but it is always important to take expenses into consideration. Choosing funds with high fees and expenses leaves you with less money to invest, and that means you would need to earn more on your money just to break even with a less costly mutual fund.
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Instructions
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Obtain a copy of the prospectus for the mutual funds you are considering. In some cases the prospectus will be available on the website of the mutual fund family. In other cases you will need to call the fund family to request a copy of the fund prospectus.
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Turn to the section that details the fees and expenses of the mutual fund. This section will be in the front of the prospectus booklet. Circle the annual expense ratio of the fund.
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Multiply the annual expense ratio of the fund times the amount of money you have to invest to get the total expenses in dollar terms. For instance, if you invest $10,000 in a fund with a 0.5 percent expense ratio, your expenses would be $50 for the year.
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Locate the performance section of the prospectus and circle the yield shown there. Multiply the investment yield by the amount you have to invest. For instance, if you invest $10,000 in a bond fund with a 4 percent yield, your income for the year would be $400. Keep in mind, however, that the yield on a bond fund will fluctuate along with the state of the economy and the level of interest rates, so your actual income could be more or less than the figure you calculate.
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References
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