Due Diligence FAQs
Why is the Total Expense Ratio an important indicator?
A total expense ratio helps determine the cost of an investment in the fund as a percentage. It is achieved by calculating the total operating cost of the fund (inclusive of management but exclusive of performance fees), divided by the fund’s average net assets. It is important as it shows whether costs are legitimate and fair or appropriate.
Where it is deemed too high it raises issues such as whether the manager is aware of how to manage costs – after all the money belongs to investors and to show some business acumen to limit costs should reassure investors. If they are high, they may also reveal expenses, which, upon closer examination, are not deemed appropriate and may even reveal serious conflicts of interests.
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