Saving & investing
What Is an Expense Ratio? Fund Fees Explained
An expense ratio is a fund’s annual operating expenses expressed as a percentage of its average net assets.
Also called: Fund expense ratio.
How it works
Mutual funds and ETFs pay operating expenses from fund assets, which reduces the return available to investors. The ratio is annual, even when expenses accrue throughout the year. It is not a fee charged on each purchase, and it does not include every possible cost of investing, such as all trading costs or a separately billed adviser fee. Check the prospectus for the applicable figure and any fee-waiver terms.
Approximate annual cost = average invested balance × expense ratio
Use a decimal ratio: 0.25% is 0.0025. The dollar estimate assumes a constant average balance; actual accrual follows the fund’s practices.
A 0.25% expense ratio on $20,000
Keep the balance at $20,000 for one year to isolate the fee arithmetic.
- Convert the rate: 0.25 / 100 = 0.0025.
- Estimated annual operating cost: $20,000 × 0.0025 = $50.
- With no return or new deposits, the simplified annual model ends at $19,950.
The illustration costs $50 for the year. A 0.25% annual expense ratio is not a 25% charge.
Zero gross return and no contributions or adviser fees. The calculator uses a simplified annual deduction, not the fund’s daily expense accrual.
Try these example inputsCheck whether your return already includes the fee
A fund’s published performance commonly already reflects operating expenses. Deducting the expense ratio again would count the same cost twice. The fee calculator’s After fund fees setting skips that second deduction; separately modeled adviser fees can still apply. Lower fees alone do not establish which investment is suitable.
Explore with a calculator
- Investment Fee Calculator
Estimate fee costs and compare two fee structures under explicit return assumptions.
- Mutual Fund Calculator
Explore a fund projection and its separate fee assumptions.
Sources and checks
- SEC Investor.gov: Expense Ratio
- SEC Investor.gov: How Fees and Expenses Affect Your Investment Portfolio
Definition and example arithmetic checked . Sources explain the concepts; numerical examples use the assumptions stated above.
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