Fund Expense Ratios: What Are You Paying For?
We shed some light on the costs fundholders pay.
Running a mutual fund, like running any business, has certain costs associated with it, and every party that performs a function along the line needs to get paid somehow. But as Morningstar's John Rekenthaler and Paul Ellenbogen recently pointed out, fund prospectuses often paint those expenses in very broad strokes, and reporting methods vary; for instance, many funds don't report these fees under clear labels such as "administrative fees" or "operational fees" or "distribution fees." Thus, it's not always easy to understand what the underlying components of the overall expense ratio are.
Let's slice up the expense ratio and look at some of the items that fundholders pay for.
Karen Wallace does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.