Before Reimbursement Expense Ratio

  

Categories: Accounting

The value of an investment fund prior to fees paid for administrative purposes.

Mork and Mindy each invest $100, Mork in a zero-fee S&P 500 ETF, and Mindy in an actively managed stock portfolio intended to closely mimic the S&P 500. Mindy pays her friend, Peter, a 5% annual fee for managing her money. After one year, the S&P 500 rises 10% and Mork's investment grows to $110.00. With all of Peter's expertise, he is able to outperform the index by 50 basis points (or 10.5%) for a fund value of $110.50 before reimbursement expense ratio. However, after fees, Mindy's investment is only worth $104.98.

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Finance: What is right of accumulation?2 Views

00:00

what is the right of accumulation? All right well it's

00:07

basically the right to count cumulative mutual fund purchases toward discounted

00:14

volume price breaks as they relate to Commission's that is you get to

00:18

accumulate or you have the right to accumulate your volume discount over time [counting money out on table]

00:24

like you don't need to put in the order for a ton of mutual fund shares upfront

00:28

they credit you over time so remember that whole mutual fund breakpoint thing

00:32

like from $250 to 2500 the Commission on the best things in life our fees fund

00:39

yeah that's 5% then on 2,500 to 10,000 the Commission is 3% and then like from

00:44

10 to a hundred grand it's like 1% blah blah blah blah blah something like that

00:48

break points in fees ie you get a break at twenty five hundred and ten grand and

00:53

a hundred grand right there's a break there so if you invested five grand and

00:58

got the three percent retroactive Commission rate if you had the right of

01:03

accumulation well then you can invest say another twenty five hundred a year

01:07

for two years for a total of another five grand and then receive retro

01:11

actively essentially a credit if that's how this funds indentures described it

01:16

it's essentially a reduction in your commission from that 5% to 3% yeah that

01:22

works very clever why would mutual funds do

01:24

this well remember that mutual funds charge investors a percentage of assets [investor looking at a pyramid of money]

01:29

the assets they manage year after year after year well the Commission upfront

01:34

is kind of small as a number when compared with total revenues to the

01:38

mutual fund over decades of happy clients continuing to hold that fund and

01:43

pay the annual fee so pretty much anything a fun can do to bring a client

01:47

in the door and then have them hold on to the money for long periods of time is

01:50

smart business for that fun so giving an investor the right to acumulate volume [counting money on table]

01:56

and then give that customer volume and price breaks along the way well it makes

01:59

a lot of sense financially the real dough is made by the management company [investor looking at pyramid of money]

02:03

collecting its annual management fee year after year after year

02:08

yeah that is one happy piggy [money going into expanding piggy bank]

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