Investing Basics

What Is an Expense Ratio?

An expense ratio is the annual fee a mutual fund or ETF charges, expressed as a percentage of the assets invested. It covers management, administration, and other operating costs, and it is deducted from the fund's assets rather than billed separately, so it reduces returns automatically.

Example

A 0.20% expense ratio costs about 20 per year for every 10,000 invested; a 1% ratio costs about 100.

Long-Term Effect

Because fees are taken every year, their impact compounds over long periods.

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🔗 Related Terms

Mutual Fund Exchange-Traded Fund (ETF) Index Fund Compound Interest

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Last updated: September 27, 2026. This definition is for general educational purposes only. It is not financial, investment, tax, legal, or medical advice, and it does not recommend any product or course of action. For decisions about your own situation, consult a qualified professional.