After Reimbursement Expense Ratio
Owning a mutual fund comes with charges. Annual ones. Every fund will have expenses, which are taken out of the investor's holdings periodically. These expenses are reported to investors as an expense ratio, giving the amount as a percentage of the total assets. The charges cover things like management costs, fees, and operating expenses.
But the news isn't all bad. Along with taking out money for expenses, some funds also give some money back in the form of reimbursements.
There can be several reasons for this. One of the more prominent purposes of these payments is to keep the expense ratio below a certain amount. Some funds seek to limit expenses in order to make the funds more attractive to buyers. These so-called capped funds use reimbursements to lower the expense ratio. Particular mutual funds can reimburse specific fees or reward long-time holders by giving them a reimbursement after they have stayed invested in a fund for a minimum number of years.
The lowered ratio is reported as "after-reimbursement" so that investors can better track what's going on.
Related or Semi-related Video
Finance: What is Compensation: Advisory ...2 Views
Finance a la shmoop what are advisory fee limits? well they're basically a
price ceiling above which financial advisors can't go yeah I can't go they [Financial advisors in an elevator and hit price ceiling]
can't touch that ceiling you know like hammer time, can't touch this...
so when you invest in a mutual fund you pay two fees there's a commission
and there's an annual management fee usually based on the assets you have
with them under management like maybe it's one percent on the first hundred [Asset rises]
grand that you have and then half a percent above a million or whatever
but there is a third and insidious fee element in the world called advisory
fees like how do you choose which fund to buy well if you have a financial
advisor they'll walk you through the lists of mutual funds out there and [Ice cream flavors appear]
index funds and all other set of funds as well well they're like a gazillion of
them and then that advisor will charge you for their time in some form right
someone's got to pay for their beach house well if you start adding up all
the fees you're paying for arguably no better performance than had you just [Itemized list of fees appear]
logged onto schwab.com or fidelity.com and bought an index fund hmm
well then you're gonna start to pause here it starts to be a big number in
those fees that eat meaningfully into your investment returns most buyers of [Pacman fees eating up money]
mutual funds are not financial gurus yeah not like that they're doctors and
lawyers and plumbing parts distributors and they really don't have a
sophisticated understanding of just how badly they could get taken by
unscrupulous financial advisors so the industry placed a series of structured
limits to keep the non gurus safe from the financial predators when it comes to
compensation and fee limits you know on advisory services and predators like [Tiger walking by]
this guy
Up Next
What is a 12b1 fee? A 12b1 fee is paid on mutual funds. The fee is paid by investors and is used to market the mutual fund to other potential inves...
What are mutual funds? Mutual funds are an aggregation of stocks, professionally managed for a "small" fee. Investors wanting exposure to a given a...
An expense ratio is a number that tells you how much you are being charged for fund management services.
A company has numerous operating expenses, but the primary ones have to do with payroll, sales and marketing, taxes and fees, office supplies, some...