Expense Ratio
The annual fee charged by a fund as a percentage of assets.
What is Expense Ratio?
The expense ratio is the annual cost of owning a mutual fund or ETF, expressed as a percentage of average net assets. It covers management fees, administrative costs, and other operating expenses. The fee is deducted continuously from fund assets, reducing returns by that percentage each year. Index funds typically have expense ratios below 0.10%, while actively managed funds often charge 0.5%–1.5%. Over long periods, even small differences in expense ratios compound into large differences in final wealth.
Example
Example
$100,000 invested at 7% gross return for 30 years grows to $761,226 at a 0.05% expense ratio versus $574,349 at a 1.00% ratio — a $186,877 difference from fees alone.