What Is an After Reimbursement Expense Ratio?

An after reimbursement expense ratio represents the actual expenses paid by a mutual fund investor. This expe♈nse ratio is calculated by subtracting any reimbursements made to mutual fund customers by the management, as well as any contra🅰ctual fee waivers from the before-expenses reimbursement ratio. An after reimbursement expense ratio is also known as a net expense ratio.

How an After Reimbursement Expense Ratio Works

After reimbursement, 澳洲幸运5官方开奖结果体彩网:expense ratios pay investors back for indirect expenses—such as any 澳洲幸运5官方开奖结果体彩网:dividends paid in stocks a manager sold short—rather than passing those on directly to cus🌜tomers. In addition, some mutual funds that invest in multiple mutual fu꧃nds to achieve better diversification, reimburse a portion of fees for the underlying funds in which they invest.

Some managers may also voluntarily waive certain fund fees to keep pricing competitive. For example, a company that runs an actively managed mutual fund that charges 1.25% a year but is consistently underperforming may decide to reimburse 0.50% of fees for a certain time period, in order to bring the fund’s after-reimbursement expenses in line with rivals that performed similarly but only charged fees of 0.75%. Fee waivers allow the fund to set a maximum level on the amount charged to shareholders. When a fund adopts an expense limit, it is referred to as a 澳洲幸运5官方开奖结果体彩网:capped fund.

For example, many 澳洲幸运5官方开奖结果体彩网:money market mutual funds that typically charge fees of 0.45% a year or more had to reimburse a portion of fees for several years in the early- and mid-2010s, due to a long stretch of historically low yields. Investors’ returns would b൩e dead flat or in some cases negative otherwise. Rather 🔜than advertise these funds at fees of 0.10% or less permanently, many chose to cap fund fees. These companies then listed an after-reimbursement expense ratio, in addition to the normal expense ratio for their respective funds.

It’s also possible for mutual fund companies to reimburse part of the 澳洲幸运5官方开奖结果体彩网:12b-1 fee, which goes toward paying brokerage commissions and toward advertising and promoting the fund. However, reimbursement for thes🧔e fees is rarer. From the perspective of an investment management company, it’s sometimes necessary to lower fees on a temporary basis to keep customers satisfied. Many companies remain fearful, however, of temporarily changing their before-reimbursement fees, because it then becomes very difficult to r🐓aise fees again at a later date. Customers get used to paying the lower fees, and they notice when they go back up.

Keeping fees technically the same but offering a temporary reimbursement helps kee🌸ps customers satiated, then lets the mutual fund company claim its fees did not go up when the reimbursement ends.