However, this expense ratio is fee charged by Investment Company. To manage funds of investors. Therefore, major part of cost. Such as legal cost, administration cost, advertising cost and management cost. But this fee is different from sales fee and commission. Check Expense ratio mutual fund calculator.
What is expense ratio?
Expense ratio is recurring management fees for mutual fund. Because, fund company charges its fund holders in each year. Therefore, all mutual fund firms use these fees. To pay for managerial expenses, administrative and other various expenses. Search for average return formula.
However, it workout. To show relationship between an individual or group and sales. It is add by dividing particular or group of expenses by net sales. It is nothing but recurring cost per unit to operate scheme. And it is charged to your assets. Check on how to calculate average annual returns
Similarly, expense of stock is total percentage of fund assets. Hence, it is used for administrative, management, advertising and other expenses. Each year 1% of total assets will be used to cover expenses. It does not consist of sales load or brokerage.
Therefore, they are important to think. When you are choosing fund as they can much affect return. It is consist of size of fund, sales charges and management fund. Because, small funds have higher ratio. As they spread expenses with smaller number of investors. How Mutual fund expense ratio impacts your return.
However, ongoing expenses of mutual fund are review by expense ratio. You can find sometimes as management expense ratio. These are normally paid for out of fund assets. And not billed to you directly. But by reducing returns that have been received on those assets.
Due to still fund investor pay indirectly. Moreover these fees appear on prospectus. Under heading “Annual Fund Operating Expenses. Moreover, these expenses incurred on buying and selling of portfolio.
How it works
However, expense ratio is recurring annual fee for fund. And you must not confuse with sales fees and commissions. Because, these are paid only on purchase or sale of fund. Hence, average expense ratio for an actively managed MF is about 1.5 %. It means that Mutual fund charges to its fund holders. As an annual fee of 1.5% of funds total assets.
Similarly, these charges will charge in every year. You can find different funds have different expense ratios. But securities & Exchange Board of India has limit that fund can charge. Hence, largest part of expense ratio is management and advisory fees. Due to from management fee an AMC generates profits.
Management expense ratio Vs Management fee
Mutual fund has many operating fees. Moreover, these fees are connected with running fund. Moreover, other than cost to buy and sell securities. And to pay investment team to make decisions. Probably, these other operating fees consist of marketing cost. Such as legal, auditing and filing cost and other administrative cost.
Different between management fee and management expense ratio.
It has little bit confusion for every person. But management and management expense ratio are not same. Therefore, these fees are not directly involved with investment. Thus, management expense ratio provides quick snapshot. So what you need to pay but it does not include everything. And Management expense ration doesn’t include trading cost.
Average annual return (IRR)
However, average annual total return. And also calculated as an annual percentage. If you specify time period is less than year. You may see changes in calculation. Due to returns may very high or very low. Also, in beginning of year there may be high swings in IRR. How to understand average annual return.
Definition of Average Annual Return
Similarly, if you have investment transaction. That affects your cash balance. Such as sell dividend and so on. It will effect to your return. Because, value of most mutual funds changes less than new funds. Probably, these funds are attractive to long term. Top 5 mutual funds for SIP.
Since, there are hundreds of financial companies that issue and promote MF. And each company investment is different. You can ride these aggressive funds. Therefore, average annual return will according to broader market. Due to specified time periods. Check on past average annual returns on mutual fund.
However, it is measure of volume of funds securities trading. Therefore it expressed as percentage of market value of long term securities. Because, turnover is lesser of fund purchase or sales. And long term securities market value. So it is divided for same period. Probably, if period is less than year. Hence turnover is generally in annual.
Finally, you want to avoid unnecessary charges wherever possible. But decide to invest in simple way. Hence for any investment is how it performs for you. And that performance must gives good returns for both short and long term.