Allocation Rate

AAA

DEFINITION of 'Allocation Rate'

The percentage of an investor's initial cash or capital outlay that actually goes toward the final investment. This amount is net of any fees that may be incurred upon initial investment and is effectively the amount that is exposed to the investment.

INVESTOPEDIA EXPLAINS 'Allocation Rate'

For example, if a mutual fund carries a 4% front-end load, only 96% of an investor's initial investment will actually be placed into the fund itself, with the rest going to the investment company. The higher the fees, the lower the overall allocation rate will be for the investor.

Management companies, pension managers and the like all charge some percentage fee for their services. More choices usually means higher allocation rates for investors, but buyers must always beware of exorbitantly high load fees or upfront costs for any investment. Stock and bond index funds remain one of, if not the highest, allocation rate vehicles available to investors who do not wish to actively manage their own portfolios.

RELATED TERMS
  1. Commission

    A service charge assessed by a broker or investment advisor in ...
  2. Front-End Load

    A commission or sales charge applied at the time of the initial ...
  3. Load

    A sales charge or commission charged to an investor when buying ...
  4. Load Fund

    A mutual fund that comes with a sales charge or commission. The ...
  5. Dividend

    A distribution of a portion of a company's earnings, decided ...
  6. Sharpe Ratio

    A ratio developed by Nobel laureate William F. Sharpe to measure ...
RELATED FAQS
  1. What mutual funds can be used for investing in the industrial sector?

    The industrial goods sector provides investors access to companies that engage in activities such as aerospace and defense, ... Read Full Answer >>
  2. What is the difference between a custodian bank and a mutual fund custodian?

    Custodian banks and mutual fund custodians, commonly known as mutual fund corporations, perform very similar roles for different ... Read Full Answer >>
  3. How does the risk of investing in the aerospace sector compare to the broader market?

    Investing in the aerospace sector is riskier than investing in the broader market. The most accurate measure of sector volatility, ... Read Full Answer >>
  4. How does a pension income drawdown work?

    While there are similar drawdown plans in the United States, a pension income drawdown plan most commonly refers to a specific ... Read Full Answer >>
  5. What is the most important section in an investment company's prospectus?

    It is important for investors to examine all information contained within an investment company’s prospectus. However, the ... Read Full Answer >>
  6. How do no-load funds typically perform relative to load funds?

    No-load mutual funds are pooled investments that do not carry an upfront sales charge when purchased or a deferred sales ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    How To Pick A Good Mutual Fund

    Learn how to evaluate mutual funds and find the right one for you.
  2. Options & Futures

    Don't Let Brokerage Fees Undermine Your Returns

    Smart investors don't give away more money than necessary in commissions and fees. Find out how to save.
  3. Options & Futures

    The Rap On Wrap Fees For Retirement Accounts

    If your retirement account is managed under a wrap fee program, you need to consider whether you should pay the fee out of your retirement account balance or out-of-pocket.
  4. Mutual Funds & ETFs

    Mutual Fund Basics Tutorial

    Learn about the basics - and the pitfalls - of investing in mutual funds.
  5. Mutual Funds & ETFs

    Top 4 ETFs That Will Help Diversify Your Portfolio

    Seeking low cost diversification to high quality stocks and bonds? Consider these 4 ETFs.
  6. Bonds & Fixed Income

    Muni Bonds, Taxable Bonds or CDs: Which is Best?

    Here's how to tell if municipal bonds are a better investment than taxable bonds or CDs.
  7. Mutual Funds & ETFs

    Mutual Funds or ETFs: Which is Better?

    Trying to decide between a mutual fund or ETF? Here's what you need to know.
  8. Investing Basics

    Understanding Open-End Funds

    An open-end fund is a type of mutual fund that does not limit the amount of shares it issues, but issues as many shares as investors are willing to buy.
  9. Investing

    The Case For Stocks Today

    Last week, U.S. equities advanced with the S&P 500 Index notching new records. Investors are now getting nervous with rate and currency volatility spiking.
  10. Investing

    Financial Gifts For Grads: Kindergarten To College

    If you really want to help your grad preparing for the future, consider a present that supports their long-term goals—an early start to financial planning.

You May Also Like

Hot Definitions
  1. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  2. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  3. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  4. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  5. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  6. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
Trading Center