Understand Mutual Fund Expenses

Eagle's Accounting solution allows you to accurately process large volumes of expense accruals, reimbursements, payments, trueups, and adjustments. You can also create and maintain the expenses, reimbursements, payments, and adjustments manually using Accounting Center's data entry panels. The system posts the transactions to the general ledger.

Fixed Expenses

Fixed expenses allow you to set up and accrue recurring expenses to book to funds on a periodic basis, including daily, weekly, monthly, and semi-annually. You can specify the accrual amount as a fixed amount to post each day or period, or as a budgeted amount to spread out and accrue over a defined length of time. You can book fixed expenses to individual share classes or the total fund. Fixed expenses can accrue on a daily, monthly, quarterly, semiannual, or annual basis. 

Budgeted Expenses

Budgeted expenses are recurring expenses that have predetermined amounts that accrue over a defined period of time. You can carry accruals forward from a prior period, analyze payments for reasonability, and perform trueups for current and prior periods. Budgeted expenses are processed only for master fund entities. 

Variable Expenses

Using variable expenses, you can accrue expenses for a mutual fund at either the total fund or share class level. Variable expenses are based on a percentage or basis points of the total net assets of the fund or share class. You set up variable expenses based on a set of tiers that define the percentage or basis point charge for the net asset range of the fund. The system applies the tiers to the fund or share classes total net assets with no more or less than a $.01 difference between adjoining levels. You specify tiers as a percentage of total net assets entered as a decimal. Because the variable expense method is based on total net assets, it only works for mutual funds or funds that have NAV information available in the Eagle system. Variable expenses can accrue based on calendar or business days and on a daily, monthly, quarterly, semi-annual, or annual basis. 

You can base variable expenses on any of the following net asset components: 

• Prior day total net assets
• Adjusted net assets
• Average net assets
• Current day's settled shares
• Current day's shares outstanding.

Security Level Expenses. Security level expenses allow you to accrue and post security level contra expenses based off of a single security's prior day's market value. Security level expenses are similar to variable expenses, but use a contra expense that is a receivable calculated based on the market value of a particular security. In contrast, variable expense processing uses a NAV component of the entity. 

Adjusted Net Asset Expenses. Eagle offers a variety of net asset methods for calculating a fund's daily variable expense. With adjusted NAV expense rules, it provides a flexible structure to define the net asset component used in the variable expense calculation, by which you can adjust/derive the total net assets used to calculate daily expenses of a fund by including or excluding various components of fund activity. 

Retail Management Fees. Retail management fees allow you to calculate a daily expense using a combination of a fixed individual fee rate and a variable group fee rate that uses month-to-date average net assets. Retail management fees are used for mutual fund entities only using Eagle's variable expense process.

Income Based Expenses. Income based expenses allow you to apply a performance rate to the current day's gross income for a range of ledger accounts that you define. The calculation determines the performance rate by an evaluation process that compares an annualized expense gross yield to the tier rate information that you provide.

Asset Management Fees. This expense type is a variable expense that is calculated by applying a performance rate to the prior day's total net assets and multiplying the result by Month/Days CPD (1/12th / number of business or calendar days in the current month as specified on entity set up). The performance rate is determined by an evaluation process that compares an annualized expense gross yield to the tier rate information that you define.

Expense Waivers. Expense waivers represent the amount the fund waives or assumes in order to keep the fund's actual expenses low. Waivers allow the fund to set a limit or cap on the amount of expenses charged to shareholders. You can set up waivers for variable expenses and for variable group expenses. You can set up waivers as well as more complex special waivers, such as assumption fees and waterfall waivers.

Group Expenses

Group expenses allow you to create an expense group whose daily expenses the system calculates based on the combined total net assets for all funds in the group. The system calculates the expense based on the combined value of all the total net assets for each fund in the group. The calculated daily expense is allocated proportionately to the funds of the group, based on the percentage of a fund's total net assets, relative to the group of fund's total net assets. The NAV component used to contribute to the total assets of the expense group is also the NAV component used to allocate expenses down to the funds. Group level expenses can be either fixed or variable. 

Expense Based Expenses

Expense based expenses allow you to accrue an expense based on the amount of another expense. You can calculate expenses based expenses at the fund or class level, and can define different rates for each class. For example, you can use expense based expenses to apply an expense on an expense for funds subject to Harmonized Sales Tax (HST) and Goods and Services Tax (GST) on management fees and various other administration fees. 

Tax Expense Based Expenses

Tax expense based expenses allow you to set up tax rates to calculate taxes based on the daily activities for income, unrealized, and realized gain/loss. Using tax expense based expenses can help you address different types of taxes applied to mutual funds in different parts of the world. As with expense based expenses, tax expense based expenses allow you to calculate taxes based on other daily expense accruals. However, tax expense based expenses allow you to select a wider range of ledger accounts for tax calculation purposes. You can define tax expense based expenses at the fund or class level. 

Performance Based Fees

Performance based fees allow you to set up fees based on the comparison of the fund's cumulative returns against a stated benchmark. The performance fee calculates a base advisory fee and an incentive fee, which adjusts the base advisory fee up if the fund outperforms its benchmark by a stated margin. Conversely, the system can adjust the base fee down if the fund underperforms its benchmark by a stated margin. You can define the performance period and NAV component used in these calculations. 

Expense Payments

Expense payments allows you to track and maintain individual payments for budgeted and variable expenses, compare the payments to the appropriate expense accrual and related payments, and book budgeted and variable expense payables against an offset account for expense payments. For fixed expenses, you book expense payables against the cash account. 

Expense Reimbursements

Generally, once a fund reaches its expense cap, the fund reimburses any additional common expense. You can base expense reimbursements on any of the net asset components listed above, as well as security based expenses, income based expenses, asset management fees, and retail management fees. Eagle can also process recoupments for reimbursements. Expense recoupments are a way for a fund manager to recover expenses that were previously waived in an effort to lower fees. 

Prospective Expense or Income Adjustments

You can create an expense or income adjustment and report it separately from regular Expense and Income items. You can use such adjustments for short accrual scenarios such as call account interest, or to account for reprocessing a NAV error. When you create prospective expense or income adjustments, the system uses the receivable/payable event types, Prospective Income Adjustments and Prospective Expense Adjustment, to identify these transactions. The expense and income is not associated with a specific asset and the income does not affect income processing.