How does mutual funds recover their expenses?

[salilsurendran]

Hello,
I own a mutual fund that has a very high expense ratio of over 2%, however, it also returns to me a high return of about 10-15%/year. I wanted to know as to how does mutual funds recover the expenses? Do they sell some shares of my funds at a regular basis? But I don't see any transactions in my account with sell? Will they recover cash when I sell all/some stake in their funds? Basically what I am interested in knowing is if I bought 5 shares of $10 and after a year the shares are $15 is it $15 after recovery of expenses or will it be recovered?

[moneysma]

Typically a fund pays for its expenses and the management team through the fund returns. So, if your fund charges 2%, it takes that off of the total return of the fund. The remaining return is what you earned. So, if you earned 10% from your fund last year, the fund itself actually earned closer to 12%. It took the fees out and gave you the remaining 10%.

[feh]

Typically a fund pays for its expenses and the management team through the fund returns. So, if your fund charges 2%, it takes that off of the total return of the fund. The remaining return is what you earned. So, if you earned 10% from your fund last year, the fund itself actually earned closer to 12%. It took the fees out and gave you the remaining 10%.

This is correct.

Also - paying a 2% ER is ludicrous. You are throwing money away.

[JulieAlbright]

What asset class of Mutual Fund is this?

10% on a stock fund over the last 3 years or so is actually a pretty low return. It's a good return for a Bond fund, but again those fees are really high. You really might consider just finding a low cost/low fee Index fund and comparing the historical rates of return.

[disneysteve]

This is correct.

Also - paying a 2% ER is ludicrous. You are throwing money away.

I agree. Stated returns are after expenses are already deducted.

But I even more strongly agree that paying over 2% is ridiculous. May I ask what fund this is?

[jIM_Ohio]

Typically a fund pays for its expenses and the management team through the fund returns. So, if your fund charges 2%, it takes that off of the total return of the fund. The remaining return is what you earned. So, if you earned 10% from your fund last year, the fund itself actually earned closer to 12%. It took the fees out and gave you the remaining 10%.

+1

Reported returns are net of expenses, and the fine print should tell you this. Check the prospectus or a website from the fund company to confirm.

[WealthInsights]

If a Fund is charging 2%, then most probobly it should be a aggressive fund where returns/risk is also very high.

The 15% return your investments achieved is net of the exps.

The Mutual fund will not declare in investor statement the shares purchased and sold by them to achieve the return.

The Mutual Fund deducts their exps from the revenue ( returns ) generated by the fund.