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.
Related or Semi-related Video
Finance: What is right of accumulation?2 Views
what is the right of accumulation? All right well it's
basically the right to count cumulative mutual fund purchases toward discounted
volume price breaks as they relate to Commission's that is you get to
accumulate or you have the right to accumulate your volume discount over time [counting money out on table]
like you don't need to put in the order for a ton of mutual fund shares upfront
they credit you over time so remember that whole mutual fund breakpoint thing
like from $250 to 2500 the Commission on the best things in life our fees fund
yeah that's 5% then on 2,500 to 10,000 the Commission is 3% and then like from
10 to a hundred grand it's like 1% blah blah blah blah blah something like that
break points in fees ie you get a break at twenty five hundred and ten grand and
a hundred grand right there's a break there so if you invested five grand and
got the three percent retroactive Commission rate if you had the right of
accumulation well then you can invest say another twenty five hundred a year
for two years for a total of another five grand and then receive retro
actively essentially a credit if that's how this funds indentures described it
it's essentially a reduction in your commission from that 5% to 3% yeah that
works very clever why would mutual funds do
this well remember that mutual funds charge investors a percentage of assets [investor looking at a pyramid of money]
the assets they manage year after year after year well the Commission upfront
is kind of small as a number when compared with total revenues to the
mutual fund over decades of happy clients continuing to hold that fund and
pay the annual fee so pretty much anything a fun can do to bring a client
in the door and then have them hold on to the money for long periods of time is
smart business for that fun so giving an investor the right to acumulate volume [counting money on table]
and then give that customer volume and price breaks along the way well it makes
a lot of sense financially the real dough is made by the management company [investor looking at pyramid of money]
collecting its annual management fee year after year after year
yeah that is one happy piggy [money going into expanding piggy bank]
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