Glossary
Expense ratio
Definition
An expense ratio is a fund's annual operating cost as a percentage of assets, deducted from returns. Over decades even 1% compounds into a large share of the ending value.
How expense ratio works
It excludes trading costs and sales loads, which add to the true cost.
Comparing net returns over long periods shows its effect.
Why it matters to a firm
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Calculators that use expense ratio
Questions about expense ratio
Is the expense ratio charged separately?
No, it's deducted from fund returns.
Does it include loads?
No.
Why does 1% matter?
Because it compounds.
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Related terms: Compound interest
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