Expense Ratio

Definition

The expense ratio is the annual fee that mutual funds, ETFs, and other investment funds charge their shareholders to cover management fees, administrative costs, and other operating expenses. It is expressed as a percentage of the fund's average net assets. For example, a fund with a 0.50% expense ratio charges $5 per year for every $1,000 invested. Index funds typically have expense ratios of 0.03-0.20%, while actively managed funds charge 0.50-1.50% or more. Over decades, even small differences in expense ratios can significantly impact returns — a 1% higher fee can reduce your portfolio value by 25% or more over 30 years.