Multiple choice

While computing the Expense Ratio for a fund, the transaction costs for buying and selling securities are not included in the fund expenses because

  1. these are not borne by investors

  2. as per accounting policies, these are capitalized and are not shown as expenses at all

  3. AMC wants to show lower expense ratios

  4. the statement is not correct
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Under standard accounting practices, securities transaction costs (brokerage, commissions, STT) are capitalized as part of the cost of acquisition of securities rather than being expensed immediately. They are eventually reflected through profit/loss when securities are sold. This is why they don't appear in the ongoing expense ratio calculation.

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