What Is an Expense Limit?

An expense limit is a limit placed on the operating expenses incurred by a mutual fund. The expense limit is expressed as a percentage of the fund's average net assets and represents a cap on the fees a share🐲holder may be charged. Knowing the expense limit of a fund is an important step in choosing a m༒utual fund as it tells an investor how much they might have to pay out of their profits.

Understanding an Expense Limit

When investing in a fund, investors are charged a fee, known as the 澳洲幸运5开奖号码历史查询:expense ratio, that goes towards the cost of operating that fund. Expense ratios vary depending on the type of fund and what it offers. 澳洲幸运5开奖号码历史查询:Actively managed funds have higher expense ratios than 澳洲幸运5开奖号码历史查询:passively managed funds as they require a loꦏt more work and intellectual input.

Expense limits are often voluntarily placed on a fund by its manager in order to relay to investors the most in expenses they will have to pay. The addition of an expense limit can make a fund more attractive to market participants as it makes them fully aware of the maximum percentཧage they may be charged. With an expense limit, fees will never rise above the stated percentage; however, the fund may charge under the stated limit.

Capped Funds

Funds that use an expense limit are referred to as 澳洲幸运5开奖号码历史查询:capped funds because the limit caps the feesꩲ that shareholders can be charged.

Fund companies provide details on capped expense levels in their 澳洲幸运5开奖号码历史查询:prospectus documents. Tꦿypically, capped expense levels will be instituted for a specified periodꩲ. To renew or revise a capped expense level, the fund must obtain approval from its board of directors.

Fund companies may add, revis🉐e, or revoke expense caps at their discretion, but documentation and disclosure must be provided. Capped funds and indices adhere to a maximum level of investment per constituent. This can provide for broader dispersion and keeps a single holding from overly influencing the performance of the fund.

Expense cap changes will affect the annual return of a fund. Any increase in expense෴ cap levels could lead to lower returns, while decreases would help to increase performance.

Investing in Capped Funds

A number of capped funds and capped indices exist in the investing market. 澳洲幸运5开奖号码历史查询:Standard & Poor's (S&P) manages many capped indices that can be used for passivꦰe investment benchmarks. Capped indices from S&P include the following:

• S&P/TSX 60 Capped
• S&P/TSX Capped Composite
• S&P/TSX Capped Energy
• S&P Russia BMI Capped
• S&P Italy LargeMidCap Capped
• S&P All Africa Capped
• DJCI Gas & Oil Capped Component
• S&P GSCI Cap Component

These funds are just a selection from Standard and Poor's. There are many other offerings out there for investors that focus on different sectors and benchmarks.

Types of Mutual Fund Fees

Mutual fund managers can charge various fees. Broadly speaking, the fees fall into two broad categories: Transaction fees paid to enter the fund (also called loads) and ongoing annual fees you pay to stay invested in the fund. The U.S 澳洲幸运5开奖号码历史查询:Securities and Exchange Commission (SEC) d꧙oes not generally limit the fees a mutual fund company can charge.

However, one exception to this is a 2% redemption fee limit in most situations. The 澳洲幸运5开奖号码历史ꦇ查询:Financial Industry Regulꦅatory Association (FINRA) limits sales loads to 8.5%, and even lower if the fund charges other fees. FINRA also limits 澳洲幸运5开奖号码历史查询:12B-1 fees used to pay marketing and distribution expenses to 0.75%.