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Mutual Funds Videos 165 videos

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Finance: What is an Expense Ratio? 14 Views


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Description:

An expense ratio is a number that tells you how much you are being charged for fund management services.

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Transcript

00:00

Finance allah shmoop What is an expense ratio Well this

00:07

ratio tells you how much you are being over charged

00:12

for your fund management services in a mutual fund It's

00:16

all about how much you're getting charged for the pleasure

00:19

and it's not always an easy real number to get

00:21

to So for almost all funds Now the regulators require

00:25

that funds published this number Why Well because the marginal

00:30

expense on your fund might be extremely low While the

00:33

overall expense might be well a lot higher How does

00:37

that work Well the charges mirror the progressive income tax

00:41

system Actually that is in a given mutual fund The

00:44

feet to manage The first say billion dollars might be

00:48

two percent then from a billion to four billion in

00:51

might be one and a half percent Then from four

00:53

billion to eight billion one percent than from eight billion

00:56

toe monaural fifty billion it's half a percent from fifty

00:59

billion on up Well then its point four percent or

01:02

something like that And the fees include the twelve b

01:04

one administration charges which tend to hover around the tenth

01:08

of a percent yourself So from mega gargantuan fifty billion

01:12

Dollar funds well that marginal fee might be something like

01:16

forty basis points are point four percent That is for

01:20

the last hundred bucks into that mega gargantuan fifty billion

01:23

dollar mutual fund will the management fee is point four

01:27

percent or forty cents for every hundred dollars Really cheap

01:31

right that's the marginal expense the last little bit at

01:35

the end of the rainbow But the average expense well

01:38

would be meaningful e higher in that the fee for

01:41

the safe first billion dollars is to percent or twenty

01:44

million box Then for the next three billion well it's

01:47

one and a half percent or forty five million Then

01:49

from four billion to eight billion We'll say it's one

01:52

percent So you got forty million there We're just adding

01:54

things up and then from a billion dollar fifty billion

01:57

well you have a point Five percent so that fees

01:59

two hundred ten million noticed that two hundred ten million

02:02

it's forty two billion total let's add up the total

02:06

fees charged for a fifty billion dollar mutual fund But

02:09

we have twenty million plus forty five billion plus forty

02:11

minute plus two ten So the total fees charged on

02:15

that fifty billion dollars of assets under management are three

02:18

hundred fifteen million divided by that fifty billion dollars or

02:23

a little over zero point six percent higher than the

02:26

zero point five percent that was charged from the eight

02:30

billion teo Fifty billion dollars doesn't seem like much but

02:34

small differences for the investor when they have a good

02:36

jillion dollars on the line Well it makes a difference

02:39

And it adds up and it puts pressure on mutual

02:41

funds Tio have really good performance And those mutual fund

02:44

people have a lot of stress and work a zillion

02:46

hours and travel locked And you know somebody has to

02:49

pay for the alimony right Yeah sorry Keeping it real

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