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Finance allah shmoop What is an expense ratio Well this

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ratio tells you how much you are being over charged

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

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

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

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to So for almost all funds Now the regulators require

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that funds published this number Why Well because the marginal

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expense on your fund might be extremely low While the

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overall expense might be well a lot higher How does

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that work Well the charges mirror the progressive income tax

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system Actually that is in a given mutual fund The

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feet to manage The first say billion dollars might be

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two percent then from a billion to four billion in

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might be one and a half percent Then from four

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billion to eight billion one percent than from eight billion

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

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billion on up Well then its point four percent or

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something like that And the fees include the twelve b

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one administration charges which tend to hover around the tenth

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of a percent yourself So from mega gargantuan fifty billion

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Dollar funds well that marginal fee might be something like

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forty basis points are point four percent That is for

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the last hundred bucks into that mega gargantuan fifty billion

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dollar mutual fund will the management fee is point four

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percent or forty cents for every hundred dollars Really cheap

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

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the end of the rainbow But the average expense well

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would be meaningful e higher in that the fee for

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the safe first billion dollars is to percent or twenty

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

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one and a half percent or forty five million Then

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

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

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things up and then from a billion dollar fifty billion

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well you have a point Five percent so that fees

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two hundred ten million noticed that two hundred ten million

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

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fees charged for a fifty billion dollar mutual fund But

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we have twenty million plus forty five billion plus forty

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minute plus two ten So the total fees charged on

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that fifty billion dollars of assets under management are three

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hundred fifteen million divided by that fifty billion dollars or

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a little over zero point six percent higher than the

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zero point five percent that was charged from the eight

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

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small differences for the investor when they have a good

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jillion dollars on the line Well it makes a difference

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And it adds up and it puts pressure on mutual

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funds Tio have really good performance And those mutual fund

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people have a lot of stress and work a zillion

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hours and travel locked And you know somebody has to

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pay for the alimony right Yeah sorry Keeping it real

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