Are the Performance Numbers of Mutual Funds Reported After Deducting Fees?

Aug 30, 2022 By Triston Martin

Does the stated performance of a mutual fund include the impact of fees? To rephrase, does the purported performance of a mutual fund include all fees and costs? The answer depends on the parameters you provide for "operation costs." Let's use a movie analogy to sort things out. The cost of a mutual fund is comparable to that of a trip to the movies. Allow us to suppose that a ticket to the movies costs $9. Adding in the cost of concessions like popcorn, soda, and sweets brings the total to $13, making a trip to the movies a pricey $13 out of pocket.

Costs that a Mutual Fund Must Pay

The same holds true when considering the overall expenses of a mutual fund. Before looking at the fund's net return, which is determined after deducting the expense ratio (which covers the fund's investment management, legal, custodial services, taxes, record keeping, accounting, and auditing costs) and the distribution fee, it's important to understand how these costs are calculated (referred to as a 12b-1 fee, whenever there is one). The total return is a net number calculated by subtracting these other amounts from the net return.

Brokerage fees incurred while purchasing and selling portfolio assets and spread disparities between the bid and ask prices are also a part of the fund's operating expenditures, although not included in the expense ratio. For funds with active portfolios, these costs may add up quickly. Finally, a sales charge (load) is not included in the cost ratio if your fund imposes one.

In light of the above, we may compare the expense ratio of a mutual fund to the cost of a movie ticket, while the fees associated with buying and selling shares are analogous to concessions. Obviously, the cost of going to the movies or investing in a mutual fund is more than just the price of a ticket or the fee ratio.

Mutual Fund Expenses

Costs associated with investing in a mutual fund are disclosed in the fund's prospectus and online. The cost ratio is often expressed as a yearly percentage of the entire value of the fund's holdings. Portfolio management fees, general running expenditures, and marketing charges are all examples of what constitutes a fund's expenses. The expense ratios of major index funds may be as low as 0.10 percent, whereas the expense ratios of smaller funds that have substantial expenditures can be as high as 2 percent or more.

Returns Net of Expenses

Mutual funds always publish their investment return net of fees and expenditures. Those that invest in a fund stand to earn 10% per year if the fund achieves that level of success. The expenditure ratio of the fund makes no difference to the stated return, whether it was 0.5 percent or 2.5 percent. The low-cost fund manager needed to make 10.5% on the portfolio in order to return 10% to investors. The portfolio of the more costly fund, on the other hand, achieved a 12.5 percent gross return and paid investors 10 percent.

Comparing Fund Expenses

Despite the fact that every mutual fund is unique in its investment approach and goals, it is essential to evaluate the fees charged by various funds. If a comparable mutual fund with a lower cost ratio is available, you should have a good reason to choose it. Although higher-cost funds have the potential to outperform, the Securities and Exchange Commission emphasizes that even a very minor variation in expense % may have a significant impact over the course of many years.

Load Fund Return Reporting

There are two possible return outcomes from mutual funds that impose a sales burden. Returns on the fund's NAV are those realized after deducting expenditures but before factoring in any sales fee incurred at the time of acquisition. The impact of the entire sales fee being paid by the fund will also be reported. There is a diminishing influence as the length of the reporting period increases. For instance, a 6-percent sales load will cut the fund's return by 6 percent in the first year but will only cut it by 0.6% every year after that.


Lack of sales charges and 12b-1 fees, together with low expense and portfolio turnover ratios, are all indicators of a high-quality mutual fund. As a matter of public record, low-cost funds perform better than high-cost funds. The reader should understand that redemption costs for early withdrawals from a fund are regulated by the investor, not the fund provider, and hence do not factor into this debate.

Related Articles