Definition
The expense ratio is the total annual cost of operating a fund, including management fees, administrative costs, and other expenses, expressed as a percentage of fund assets. It's deducted from returns. Index funds may charge 0.03-0.10%, while active funds often charge 0.50-1.50% or more.
Formula
Expense Ratio = Total Fund Costs / Average Fund Assets
Example
A fund with 1% expense ratio charges $100 annually on a $10,000 investment, reducing your returns.
FAQ
What is Expense Ratio?
The annual fee charged by a fund expressed as a percentage of assets.
How do you calculate Expense Ratio?
A common formula for Expense Ratio is: Expense Ratio = Total Fund Costs / Average Fund Assets
Why is Expense Ratio important?
Expense Ratio helps investors evaluate fund types and make more informed decisions.