Question

Mutual Fund Returns This year Shelly invested $32,000 in a mutual fund with a 2% front end load and estimated annual expenses of 1.69%. The fund's gross return is 7.0%. What is Shelly's first year return net of loads and expenses if expenses are calculated against ending NAV?

Answer 1

Shelly's first year return is computed as shown below:

Amount initially invested is computed as follows:

= $ 32,000 × (1 - 0.02)

= $ 31,360

With a gross return of 7% the amount will grow to

= $ 31,360 × 1.07

= $ 33,555.2

Then, after the expense deduction of 1.69% this will leave Shelly with

= $ 33,555.2 x  (1 - 0.0169 )

= $ 32,988.11712

So, the net rate of return will be

= ($ 32,988.11712 - $ 32,000) / $ 32,000

= 3.09% Approximately

Feel free to ask in case of any query relating to this question