Ehtiraf

When a manager is hired to manage a mutual fund, he or she is getting paid—by you, if you’re one of the investors. Most managers get a percentage each year to manage a fund’s assets. The average is about 1 percent of the invested capital a year, which I think is quite high. In addition to the management fee, the fees for operating the fund also come from the investor. All these fees together add up to what’s called the expense ratio of the fund. I’ve seen them as high as 2.75 percent. Whatever the expense ratio, it will definitely affect your rate of return. Let’s say that one spectacular year the manager of your mutual fund makes a return of 20 percent. Do you get that 20 percent? No. Before you get your money, the fund subtracts the expense ratio. If the expense ratio is 2.75 percent, your return will be 17.25 percent.
One of my favorite index funds, on the other hand, has a total expense ratio of .20 percent and does very well, thank you. Why in the world would you want to pay someone to manage your money for you if that manager couldn’t consistently outperform the index that it’s comparing its performance to? You wouldn’t.