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  Friday November 24, 2017

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WHAT EXPENSES DOES AN EXPENSE RATIO INCLUDE?
Learn even more about this topic with the Encyclopedia of Personal Finance™

The performance of a mutual fund depends heavily on the market experience and expertise of its professional managers, so salaries, benefits, and perquisites comprise a large portion of a fund's expenses. Investment firms often need a number of analysts who specialize in different investment areas and industries in order to make good fund allocation decisions.

Expense ratios also include the types of office and administrative expenses you would expect to find in any information-dependent company. A fund might require support staff, computers plus related peripherals and software, the latest in telecommunications technology, and other standard office equipment. Add offices and conference rooms, utilities, insurance, and rent or mortgage payments, and you have a fair idea of the most common expenses.

In addition, the performance of a mutual fund depends heavily on how many shares the fund sells.

As a result, some funds charge 12b-1 fees, which cover advertising, marketing, and other costs related to distributing fund shares.

The Securities and Exchange Commission (SEC) approved its 12b-1 rule in 1980, and mutual funds that charge these fees include them in their expense ratios.

Funds that seek individual investors as clients—as opposed to institutional funds that focus on investing for foundations, retirement plans, and other large organizations—more often depend on advertising and marketing promotions to recruit new investors.

Now that you know what the expense ratio is, where do you find it? We're glad you asked! This is the topic of the next article.




LEARN EVEN MORE WITH THE ENCYCLOPEDIA OF PERSONAL FINANCE. CLICK HERE!

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