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Author: DigbyRC Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75833  
Subject: How Expensive is a Fund, based on it's Fees ? Date: 1/6/2000 2:41 PM
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My mind goes to gel when I try to figure out how expensive a fund is. Sure I know that index funds, normally, are significantly cheaper than managed funds, however, how do you figure out what managed fund is the cheaper of two you are looking at - for your own specific investment plans. Here, I'm assuming that the two (or more) under consideration have similar year to year performances.

Basically I really don't know how to figure out from the information given in prospectuses how much I'll pay in fees.

For example, lets take a hypothetical investment choice.

I invest $3,000 in Fid. Sel. Technology (FSPTX). How much of that $3,000 gets taken out in fees during the course of year 1, and how much gets taken out in year 2 assuming I keep all my money in that fund, and how much gets taken if I exit it in year 3 ?

The fees listed for FSPTX are
Maximum Sales Fees:
Initial 3.00%
Deferred 0.00%
Redemption 0.75%

Maximum Fees:
Administrative 0.00%
Management 0.30%
12b-1 0.00%

Actual Fees:
12b-1 0.00%
Management 0.60%
Total Expense Ratio 1.20%

Expense Projections:
3yr $78
5yr $108
10yr $192

I obviously am at sea here because I don't understand how an actual management fee can be higher than the maximum fee, and I don't know how the expense projections are calculated and thus whether they are relevant to my situation and plans, nor how the expense ratio is calculated, nor whether in fact the expense ration is the only number I need to care about.

Any light any of you can shed on the subject, or any webresource that could help would be much appreciated.

Thx,

Dr.C
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Author: Melman Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17434 of 75833
Subject: Re: How Expensive is a Fund, based on it's Fees Date: 1/6/2000 3:24 PM
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Please see the response to this question that I posted on the Mutual Funds board, and please avoid the temptation to post questions to multiple boards. I know you want to get the most responses that you can, but in general there is usually one "right" board for questions such as this.



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Author: W401K Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17436 of 75833
Subject: Re: How Expensive is a Fund, based on it's Fees Date: 1/6/2000 3:49 PM
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The number you need to look at for ongoing expenses is the total expense ratio. In this case 1.20% This means that you will pay 1.20% of assets in the fund, or in your example $36.00 per year. Expenses are generally deducted quarterly before the NAV is calculated. So if your fund earns 11.5% for the year, you will only see a gain of 10.3%.
I have no idea how the Management Fee of 0.60% can exceed the maximum fee allowed. Please double check this info. If it is accurate, call the fund family and ask for an explanation and please post their response.
The total expense ratio includes the 12b-1 fee and management fee. The rest of the expense ratio is made up of other expenses such as Rent, Electric Bill, Season Tickets to the Celtics (Luxury Box), etc. etc.
The initial load of 3% is charged when you purchase the funds. You should NEVER buy a fund with a load. Deferred Loads or back end loads aka CDSC. (Contingent Deferred Sales Charges) is when they charge a load upon withdrawal. This usually is on a sliding scale and disapears after 5 years. Again loads are expressed as a precentage of assets. The Redemption fee of .75% is usally charged if any redemptions are made within a short period of time after investment. Usually 90 days. This can vary so double check or call the 800 number and ask. Again, you should NEVER pay any type of load.
Hope this helps. Even if just a little. Please follow up with any additional questions.

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Author: DigbyRC Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17440 of 75833
Subject: Re: How Expensive is a Fund, based on it's Fees Date: 1/6/2000 4:54 PM
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Thankyou for taking the time to reply in such detail.

The figures came from Morningstar's info. on the FSPTX fund. Maybe it's a transcription typo from the prospectus. The prospectus itself isn't available on line from Fidelity, it's in the mail to me. I'll check it when I get it.

I feel a lot more clued up now.

I also rechecked with Fidelity regarding front sales fees. Yesterday they said they applied. Today they said they didn't but today's rep. sounded like he knew his stuff and was very fluent in the lore of fees, yesterdays rep sounded a little intimidated by the question. Which is a big relief, seeing as some are 3%+.

And through your reply and another one I received it's nice to be educated enough about fees to know that the expense ratio is a) a separate entity from the load/redemption fees and b) already taken into account before they post the performance of the fund.

Thx again,

Dr. C

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Author: mphipps Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17510 of 75833
Subject: Re: How Expensive is a Fund, based on it's Fees Date: 1/7/2000 6:58 PM
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IMO
If all the funds you evaluate report there % returns by including the fees then all you do is compare % returns.
If this is the case then the fees are only useful in comparing doing it yourself investing or using mutual fund.
My option is doing it yourself will provide you better returns if
You have the time and are reallyyyyy smart.

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