AboutWarren Boroson Expertise Author of "Keys to Investing in Mutual Funds" (Barrons), "Ultimate Mutual Fund Guide" (Probus), "How to Pick Stocks Like Warren Buffett" (JKLasser), and "The Reverse Mortgage Advantage" (McGraw-Hill). Former financial columnist for Gannett News Service.
Experience Author of 20 books; winner of 1996 Personal Finance award from Investment Company Institute and Washington University. Formerly on staffs of Money and Sylvia Porter's Magazine. Had a radio program (on WEVD) about mutual funds and a newsletter, FundDigest.
Expert: Warren Boroson Date: 5/29/2005 Subject: Clarify the total Cost on investment on mutual fund
Question Dear Mr. Warren Boroson,
The net asset of a fund determines a fund price. Investment cost is one of factors that will affect to a fund's asset.
For example, the running cost of a fund involves purchasing and selling stocks. This cost will decrease the asset of a fund. There are many other runnig costs of a fund, such as rental, staff payroll, promotion,commission, ... , etc.
All mutual funds charge customers management fee yearly. Does the management fee already cover the remaining part of running cost of a fund. Or the management fee is just the services charge of a fund house to run the fund.
That mean, the net asset of a fund will be reduced by the total annual running cost of a fund and annual management fee.
Is there any misunderstanding about my concept on running cost of a fund eventually that I need to pay the bill?
Thank you for your valuable sharing.
Regards,
Stephen So
Answer Dear Stephen So:
The management fee is less than the net asset value. The fee does not include trading costs, printing costs, running an office, and so forth.
What you should look at is a fund's expense ratio. This includes all the expenses of running a fund, divided by the assets. (The more assets a fund has, the lower its expenses should be.)
Fixed-income funds have a lower expense ratio than stock funds. Foreign stock funds and sector funds have higher expense ratios.
In looking at a fund, compare its expense ratio with those of similar funds. But keep in mind that new funds, with little in the way of assets, tend to have high expense ratios.
The expense ratio of the typical U.S. stock fund is 1.46%.
Some funds with excellent records have high expense ratios, and -- in my opinion -- that can be a good excuse.
