Ch.10 · Benchmarks and Performance Evaluation · medium
What is the 'expense ratio drag' on mutual fund performance?
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EXPLANATION
Expense ratio drag means the TER charged annually directly reduces investor returns. A fund with gross return of 12% and TER of 1.5% delivers net return of 10.5% to investors. For the fund to add value vs a passive index (0.1-0.2% TER), it must outperform the index by more than the additional TER cost. This is why most active funds fail to beat index funds net of expenses over the long term.
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