The following questions are about mutual funds:

i. What are index funds?
ii. What is an expense ratio? How do expense ratios affect the value of an investor's portfolio?


i. An index fund is a mutual fund that is passively managed, which means that the mutual fund manager simply tries to track the return of an index, like the Standard & Poor's 500 stock index.
A-head: INVESTMENT ACCOUNTS
Concept:Mutual funds
ii. Expense ratios are annual fees charged by mutual funds in order to pay mutual fund managers and to pay other record-keeping and marketing costs of the fund. Expense ratios make a very big difference in the long-run performance of investments. Paying an annual fee of even 1 percent will reduce the annual rate of return on the investment from say, 10 percent to 10 – 1 = 9 percent.
A-head: INVESTMENT ACCOUNTS; CHOICE AND CONSEQUENCE: OVERLOOKING FEES
Concept: Expense ratios

Economics

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