After Reimbursement Expense Ratio

Finance allah shmoop What is an expense ratio Well this

ratio tells you how much you are being over charged

for your fund management services in a mutual fund It's

all about how much you're getting charged for the pleasure

and it's not always an easy real number to get

to So for almost all funds Now the regulators require

that funds published this number Why Well because the marginal

expense on your fund might be extremely low While the

overall expense might be well a lot higher How does

that work Well the charges mirror the progressive income tax

system Actually that is in a given mutual fund The

feet to manage The first say billion dollars might be

two percent then from a billion to four billion in

might be one and a half percent Then from four

billion to eight billion one percent than from eight billion

toe monaural fifty billion it's half a percent from fifty

billion on up Well then its point four percent or

something like that And the fees include the twelve b

one administration charges which tend to hover around the tenth

of a percent yourself So from mega gargantuan fifty billion

Dollar funds well that marginal fee might be something like

forty basis points are point four percent That is for

the last hundred bucks into that mega gargantuan fifty billion

dollar mutual fund will the management fee is point four

percent or forty cents for every hundred dollars Really cheap

right that's the marginal expense the last little bit at

the end of the rainbow But the average expense well

would be meaningful e higher in that the fee for

the safe first billion dollars is to percent or twenty

million box Then for the next three billion well it's

one and a half percent or forty five million Then

from four billion to eight billion We'll say it's one

percent So you got forty million there We're just adding

things up and then from a billion dollar fifty billion

well you have a point Five percent so that fees

two hundred ten million noticed that two hundred ten million

it's forty two billion total let's add up the total

fees charged for a fifty billion dollar mutual fund But

we have twenty million plus forty five billion plus forty

minute plus two ten So the total fees charged on

that fifty billion dollars of assets under management are three

hundred fifteen million divided by that fifty billion dollars or

a little over zero point six percent higher than the

zero point five percent that was charged from the eight

billion teo Fifty billion dollars doesn't seem like much but

small differences for the investor when they have a good

jillion dollars on the line Well it makes a difference

And it adds up and it puts pressure on mutual

funds Tio have really good performance And those mutual fund

people have a lot of stress and work a zillion

hours and travel locked And you know somebody has to

pay for the alimony right Yeah sorry Keeping it real