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 a 12b1 fee?91 Views
Finance a la shmoop.. what is a 12b1 fee what a clever name like why don't they give
normal names to these things like fund admin expense fee or just name it Bob [Document with Bob written at the top]
but they don't so you just have to memorize what they mean anyway
mutual funds had to bear enormous communications related expenses in the
pre computer-internet everyone has an email address era delivering gobs of [Mail man arrives at house]
paperwork snail mail to its customers it was enough expense to them that well
they frankly just hated doing it and did more or less anything they could to [Man licking envelopes]
avoid having to deliver you know dead trees so along came the investment
advisors act of 1940 which basically recognized that mutual funds did in fact
have expenses that were more than bonuses to the senior partners the 12b1
fee system allowed a fairly set and standard amount of fees to be charged to
customers so that a given mutual fund could recoup the money it had to spend [Fund statement document appears]
mailing annual reports and performance data and tax information and all kinds
of other things to its customers the 12b1 system was basically a
pass through set of charges such that the customer paid for her own paperwork
incentivizing mutual funds to actually do a good job communicating with their [Woman receiving a trophy on stage]
constituency and it let the little guy mutual funds compete against the big guy
mutual funds who already had all that infrastructure of course the biggest
winner out of this entire deal yeah it was the trees especially the ones who [Tree given a first prize award]
got in early on Google
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An expense ratio is a number that tells you how much you are being charged for fund management services.