What is the 'Gross Expense Ratio - GER'

The gross expense ratio (GER) is the total percentage of a fund's assets that are devoted to running the fund. The gross expense ratio includes any fee waiver or expense reimbursement agreements that may be in effect. It does not include any sales or brokerage commissions which are not charged to the fund directly. 

BREAKING DOWN 'Gross Expense Ratio - GER'

The gross expense ratio is important because it gives investors an understanding of the total amount of fees involved with managing the fund. The gross expense ratio includes all fees incurred by the fund including management fees, 12B-1 fees, administrative costs and operating expenses. Investors should compare the gross expense ratio to a fund’s net expense ratio and understand the differences involved.

In some cases, a fund may have agreements in place for waiving, reimbursing or recouping some of the fund’s fees. (See also How do waivers, reimbursements and recoupments affect a fund's expense ratio?) This is especially existent in new funds. An investment company and its fund managers may agree to waive certain fees following the launch of a new fund to keep the expense ratio lower for investors. The net expense ratio represents the fees charged to the fund after any waivers, reimbursements and recoupments have been made. These fee reductions are typically for a specified timeframe after which the fund may incur all full costs.

For example, if a fund has a net expense ratio of 2% and a gross expense ratio of 3%, it is readily apparent that 1% of the fund's assets were used to waive fees, reimburse expenses or provide other rebates not included in the net expense ratio. This is important because such rebates and reimbursements may or may not continue in the future. Prudent investors will want to examine both expense ratios and compare them to like funds before investing.

Investment Fund Examples

In general, passively managed funds will typically have lower expense ratios than actively managed funds. Gross expense ratios usually range from 0% to 3%. Below are two fund examples.

AB Large Cap Growth Fund

The AB Large Cap Growth Fund is an actively managed fund with a gross expense ratio of 1.02% and a net expense ratio of 1.00% for the Class A shares. The Fund currently has a fee waiver and expense reimbursement of 0.02%. Management fees for the Fund are 0.59%. The Fund invests primarily in large-cap U.S. stocks with high growth potential. It typically includes 50 to 70 holdings.

T. Rowe Price Equity Index 500 Fund

The T. Rowe Price Equity Index 500 Fund is a passive fund. It seeks to replicate the S&P 500 Index. As of December 1, 2017, it has some contractual fee waivers in place. Its gross expense ratio is 0.23%. It net expense ratio is 0.21%.
 

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