Some actively managed funds that employ options and other high-cost hedging strategies have higher fund expense ratios, though it’s rare to see a ratio north of 2.50%. Mutual funds that actively buy and sell securities will typically carry expense ratios between 0.50% and 1.50%. The ratio calculation depends on what type of fund you’ve invested in and who manages it. Since the amount of effort that goes into managing funds depends greatly on its investment strategy, it stands to reason that expense ratios also demonstrate considerable range. On average, an equity mutual fund has an expense ratio of 0.55%, according to the most recent survey by the Investment Company Institute. Different Funds Offer Different Expense Ratios They aren’t typically listed in your account statements, though. You can find the expense ratio for a fund when comparing funds on a brokerage site, as well as on the fund’s prospectus. These are classified as debits, and they are listed on account statements. Some of the fund’s costs are not included in the expense ratio, such as sales commissions paid to a broker who sold you the fund (these are referred to as loads), or trading commissions and account services fees. For example, a fund with $1,000 might have an annual expense ratio of 1%, meaning that $10 is deducted from your account to cover costs every year. The fees are bundled into a ratio that is expressed as a percentage of your total assets with that fund, and deducted from the net assets on an annual basis. With many mutual funds, a 12b-1 fee, which covers a fund’s marketing and distribution costs, makes up a large proportion of the expense ratio. But most expense ratios include outlays for fund management, marketing, recordkeeping, administration, compliance and shareholder services. The costs that go into an expense ratio vary greatly from fund to fund.
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