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I'm looking at some funds to invest my 401k into. I noticed that a couple appeared to have a higher "Net Operating Expense Ratio" (0.56%) than the "Total Operating Expense Ratio" (0.50%). If it matters, the one I'm specifically talking about is the SSgA Russell Small Cap Value Index Fund (couldn't find a ticker for it).

How is this possible? Or am I understanding the information given incorrectly?

  • 401k plans generally restrict investment choices to a handful of funds, and thus, for most people who are employees, the choices are as set by the plan. Some 401k plans have a self-directed investments option where an employee can invest in other mutual funds as well as in stocks and bonds through a brokerage but all within the 401k. Usually, this option has higher fees and expenses. So, are you an employer looking to find new investments for your company's 401k plan, or is this through your Solo 401k, or are you someone with a brokerage account inside the 401k? – Dilip Sarwate Oct 17 '13 at 3:06
  • Have you looked in the prospectus or fund's annual report to see if this is a one-time anomaly or if it is often repeated? – JB King Oct 17 '13 at 16:05
  • @DilipSarwate I'm an employee that's signing up for an employer-sponsored 401k plan. It has a choice of signing up for a portfolio of funds, titled by your approximate retirement year (so, for example, "<Professionally managed fund with impressive-sounding-name> 2025/2035/2045 etc.". The other option is to select funds and proportions of your contributions to invest into. ("Invest 20% into equity fund A, 15% into bond fund B" etc). I'm taking option 2 (select contributions to specific funds. – Jay Oct 17 '13 at 16:34
  • @JBKing I'm having a hard time finding this fund online at all. This fund lfg.com/lfg/DOCS/lfgclient/lvip/sp-lvip-std-SCIndex.pdf is closest to what I'm looking for but it has no mention of net expense, only total expense – Jay Oct 17 '13 at 16:35
  • Some costs aren't part of the posted expense ratio of a fund is one idea. For example, how much buying and selling of securities will the fund do? This isn't known at the start of a fiscal year but is known historically and thus you could have one ratio higher than the other though I'd be tempted to check for foot notes to see if there is a waiver or fee reduction that may also play a part here. – JB King Oct 17 '13 at 16:42
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This factsheet claims that

The Indirect Expenses combined with the Direct Expenses of the Fund (the "Total Annual Operating Expense Ratio") are not expected to exceed .06% annually.

The second of three links found had no useful information.

The last of three has this data:

Investment management fee 0.50%

Underlying mutual fund fee 0.06%

Fee regulation is not thankfully well-regulated except for a disclosure of gross fees which is sufficient; therefore, almost all fee disclosures should be chased down for detail.

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