![]() Generally, 0.5-1% of the total asset base is deducted as management fees of a mutual fund. Portfolio and fund managers devote considerable time and energy to determine profitable investment opportunities through rigorous market research and calculated predictions. This charge is allocated towards the payment of the people responsible for the operation of a mutual fund. Various types of charges present in a mutual fund expense ratio are – These charges are revealed via a statement every 6 months, depicting the amount deducted from the account of the investors to meet these costs. Complete information about these costs and its breakups are released to the investors, to ensure transparency. Workings of a mutual fund are complex, with numerous factors playing a significant role in behind its successful performance. What are the Components Of Expense Ratio? Higher the asset base, lower will be the ratio, and vice-versa, given total costs remain constant. This can be depicted by the expense ratio formula, given by total expenses divided by total assets of the funds. Therefore, expense ratios have an inverse relationship with size of the respective mutual fund. In case of large-cap mutual funds, on the other hand, the amount reserved to meet the expenses is a smaller subject to the total asset value. This thereby increases the relative value of the expenses concerning the total amount of funds available. A fund operating with a smaller pool of financial resources has to allocate a certain proportion towards optimal management. Value of an expense ratio depends upon the size of the mutual fund in question. It includes annual operating costs, including management fees, allocation charges, advertising costs, etc. Expense ratio is the annual maintenance charge levied by mutual funds to finance its expenses.
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