Glossary
Expense ratio
The annual fee a fund charges as a percentage of assets, deducted from the fund's returns; 0.03% costs $3 a year per $10,000.
On this page
An expense ratio is the yearly cost of owning a fund, stated as a percentage of the money invested. It covers management fees, administration, custody and, for some mutual funds, 12b-1 marketing fees. You never see a bill: the fund deducts the cost from its assets a little each day, so it shows up as a slightly lower return. Because it is charged every year whether the fund does well or badly, it is one of the few return drivers an investor fully controls.
How it works
A 0.03% ratio costs about $3 a year per $10,000; a 1.00% ratio costs about $100. The bigger effect is compounding, because money paid in fees no longer grows.
What it leaves out
The expense ratio is not the whole cost of a fund. Trading commissions inside the fund, the bid-ask spread you pay on an ETF, sales loads on some mutual funds and advisory fees charged on top are all separate. Funds report gross and net ratios; the net figure reflects fee waivers that can expire. Compare funds that track the same index on total cost and tracking difference, not on the expense ratio alone.