Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Net vs. Gross Expense Ratio of Mutual Funds
Old 04-25-2014, 10:30 PM   #1
Recycles dryer sheets
 
Join Date: Apr 2008
Posts: 223
Net vs. Gross Expense Ratio of Mutual Funds

I have a selection of Fidelity mutual funds to choose from and noticed differences between the net and the gross expense ratios, which are sometimes substantial. Eg, this one has an 8% difference:

https://fundresearch.fidelity.com/mu...ices/62827M607

I did some web searches and have not found an explanation that makes sense. Apparently the gross expense ratio refers to all the fees deducted from the assets of the fund (which can exclude 12b and other fees). However, sometimes there are fee waivers which makes it less costly and the net expense ratio reflects this. So the question is, for me in a tax-advantaged retirement account, do I receive these fee waivers and should I just be looking at the net expense ratio?

Thanks!
__________________

__________________
inquisitive is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 04-26-2014, 12:55 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,385
I am not an expert in this, but I believe that the difference is what you say, fee waivers. Most commonly it is a fund that has not yet achieved its design size, so the expenses are piled on a relatively small number of shares. The waiver (by the management company)attempts to make this more palatable until the fund can attract a larger asset base. It is done at the level of the fund, not on individual holders, so it should not matter what sort of account you hold the shares in. Another motivation for waivers is financial repression- again, if the fund manager does not cut his fees there might be so little income in many shorter term income funds that they might not attract assets.

Ha
__________________

__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 04-26-2014, 06:34 AM   #3
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,458
The fund annual report must include a statement of operations where they detail all the fund expenses before any waiver. For this fund it is here http://eventidefunds.com/wp-content/...port-FINAL.pdf and the expense breakdown is on page 15.

HaHa is correct, the waiver is at the macro fund level and applies to all outstanding shares.

The fund prospectus and annual report should include an entry that states when the waiver expires.
__________________
MichaelB is online now   Reply With Quote
Old 04-26-2014, 11:45 AM   #4
Thinks s/he gets paid by the post
 
Join Date: Nov 2009
Posts: 3,869
Having been in a Fidelity mutual fund when its asset base was pretty small in its early years, I have seen Fidelity reduce the expense ratio a little bit until the fund grew over time and its ER decreased to the reduced level on its own.

I can't say I have ever seen in an annual or semi-annual report a target date for when the ER reduction would expire, though. Then again, I can't say I looked very hard for one.
__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

"I want my money working for me instead of me working for my money!"
scrabbler1 is online now   Reply With Quote
Old 04-26-2014, 02:40 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Apr 2013
Posts: 5,580
Quote:
Originally Posted by inquisitive View Post
I have a selection of Fidelity mutual funds to choose from and noticed differences between the net and the gross expense ratios, which are sometimes substantial. Eg, this one has an 8% difference:

https://fundresearch.fidelity.com/mu...ices/62827M607
Minor point, but for accuracy sake, this is not a Fidelity fund. It's available through Fidelity's NTF network. Not sure who would gets the .20% 12b1 fee.
MRG
__________________
MRG is offline   Reply With Quote
Old 04-26-2014, 08:19 PM   #6
Recycles dryer sheets
 
Join Date: Apr 2008
Posts: 223
Quote:
Originally Posted by haha View Post
I am not an expert in this, but I believe that the difference is what you say, fee waivers. Most commonly it is a fund that has not yet achieved its design size, so the expenses are piled on a relatively small number of shares. The waiver (by the management company)attempts to make this more palatable until the fund can attract a larger asset base. It is done at the level of the fund, not on individual holders, so it should not matter what sort of account you hold the shares in. Another motivation for waivers is financial repression- again, if the fund manager does not cut his fees there might be so little income in many shorter term income funds that they might not attract assets.

Ha
So then I should basically just look at the net expense ratios and ignore the gross ratios?
__________________
inquisitive is offline   Reply With Quote
Old 04-26-2014, 09:56 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,862
Per the summary prospectus the fee wavier agreement ends in October 2014, so that might bear some watching. Most of the fees were "Other", so not much to go on there. The full prospectus doesn't have the big "Other" fees, so that's confusing too. I wouldn't touch it with a 10 foot pole.
__________________
Animorph is offline   Reply With Quote
Old 04-27-2014, 01:04 PM   #8
Thinks s/he gets paid by the post
 
Join Date: Nov 2009
Posts: 3,869
Quote:
Originally Posted by inquisitive View Post
So then I should basically just look at the net expense ratios and ignore the gross ratios?
That's what I do.
__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

"I want my money working for me instead of me working for my money!"
scrabbler1 is online now   Reply With Quote
Old 04-30-2014, 04:21 PM   #9
Recycles dryer sheets
bamsphd's Avatar
 
Join Date: Nov 2005
Posts: 337
Quote:
Originally Posted by inquisitive View Post
So then I should basically just look at the net expense ratios and ignore the gross ratios?
Fee waivers are a marketing device.

If you are the type who regularly monitors your expense ratios, and your account allows you to easily change investments with no tax impacts, transaction fees, or bid/ask spread costs then you can take advantage of funds with fee waivers.

If you might not quickly notice when the fee waiver expires, or you might incur costs moving your money, then invest based on the gross ratios.
__________________
bamsphd is offline   Reply With Quote
Old 04-30-2014, 06:33 PM   #10
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Laurel, MD
Posts: 2,951
Quote:
Originally Posted by inquisitive View Post
So then I should basically just look at the net expense ratios and ignore the gross ratios?
With the info provided that the fee waivers expire in 6 months, why would you ignore the gross ratio? The er on this particular fund is HUGE.
__________________

__________________
...with no reasonable expectation for ER, I'm just here auditing the AP class.Retired 8/1/15.
jazz4cash is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
401k (high expense ratio) vs. Non-Tax deferred account (low expense ratio) Mike54 FIRE and Money 15 11-11-2012 11:31 PM
employer retirement match included in % net/gross income saved? phardwid Young Dreamers 6 07-23-2010 10:22 AM
Mutual fund expense ratio variety slazenger FIRE and Money 3 05-06-2008 11:13 PM
38, saving 31% gross, living on 33% gross, looking to be able to retire at 48 retire48in2018 Hi, I am... 4 03-12-2008 04:33 PM
Funds with expense ratio = N/A? veritasophia FIRE and Money 2 02-11-2007 12:37 PM

 

 
All times are GMT -6. The time now is 08:32 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.