Expense Ratio


DEFINITION of 'Expense Ratio'

A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual calculation, where a fund's operating expenses are divided by the average dollar value of its assets under management. Operating expenses are taken out of a fund's assets and lower the return to a fund's investors.

Also known as "management expense ratio" (MER).


Loading the player...

BREAKING DOWN 'Expense Ratio'

Depending on the type of fund, operating expenses vary widely. The largest component of operating expenses is the fee paid to a fund's investment manager/advisor. Other costs include recordkeeping, custodial services, taxes, legal expenses, and accounting and auditing fees. Some funds have a marketing cost referred to as a 12b-1 fee, which would also be included in operating expenses. A fund's trading activity, the buying and selling of portfolio securities, is not included in the calculation of the expense ratio.

Costs associated with mutual funds but not included in operating expenses are loads and redemption fees, which, if they apply, are paid directly by fund investors.

  1. Mutual Fund Wrap

    Also known as a mutual fund advisory program or a wrap account, ...
  2. Total Expense Ratio - TER

    A measure of the total costs associated with managing and operating ...
  3. Contingent Deferred Sales Charge ...

    A fee (sales charge or load) that mutual fund investors pay when ...
  4. Turnover Ratio

    The percentage of a mutual fund or other investment vehicle's ...
  5. Before Reimbursement Expense Ratio

    The percentage of a fund's average net assets that is used to ...
  6. Operating Expense

    A category of expenditure that a business incurs as a result ...
Related Articles
  1. Mutual Funds & ETFs

    Best 3 Vanguard Mutual Funds for Retirement

    Discover the top Vanguard target-date retirement funds with target dates in 2020, 2030 and 2050, and learn about the characteristics of these funds.
  2. Mutual Funds & ETFs

    Best 3 Vanguard Funds that Track the Top 500 Companies

    Discover the three Vanguard funds tracking the S&P 500 Index, and learn about the characteristics and historical statistics of these funds.
  3. Mutual Funds & ETFs

    Are Vanguard Mutual Fund Fees Competitive?

    Discover how the fees and expenses charged by Vanguard's family of mutual funds compares to those of other competing mutual fund families.
  4. Mutual Funds & ETFs

    3 Vanguard Funds with the Lowest Fees

    Learn about the top three Vanguard funds that have the lowest expense ratios and follow different investment objectives by investing in equities and bonds.
  5. Mutual Funds & ETFs

    Best 3 Vanguard Funds in the Healthcare Sector

    Discover information about some Vanguard funds that provide exposure to the health care sector, and find out about their characteristics.
  6. Mutual Funds & ETFs

    The 3 Best Vanguard Mutual Funds for Young Investors

    Learn about three Vanguard mutual funds that are suitable for young investors who are just starting out and beginning to build their portfolios.
  7. Mutual Funds & ETFs

    Picking the Right ETFs for Your 529 Plan

    Learn about the characteristics of ETFs that make them appropriate for a 529 portfolio, and discover how 529s should turn more conservative as college nears.
  8. Mutual Funds & ETFs

    3 ETFs That Invest in Semiconductors

    Obtain information on three of the most widely traded ETFs that investors utilize to gain investment exposure to the important semiconductor industry.
  9. Mutual Funds & ETFs

    Investing and Analysing the Vanguard REIT ETF

    Learn about the Vanguard REIT ETF and how it provides an easy and inexpensive way to diversify portfolios into the real estate sector.
  10. Mutual Funds & ETFs

    Top 2 Vanguard Energy ETFs and Mutual Funds

    Read detailed analyses of an energy exchange-traded fund (ETF) and an energy mutual fund issued by Vanguard, and learn about their characteristics and historical statistics.
  1. How liquid are Vanguard mutual funds?

    The Vanguard mutual fund family is one of the largest and most well-recognized fund family in the financial industry. Its ... Read Full Answer >>
  2. Can you invest in mutual funds on E*TRADE?

    E*TRADE allows investors to invest in thousands of mutual funds through its investment platform. E*TRADE has over 8,000 leading ... Read Full Answer >>
  3. What are Vanguard's Admiral Shares?

    Admiral Shares represent a separate class of mutual funds shares administered by Vanguard that offer lower fees compared ... Read Full Answer >>
  4. How are mutual funds rated?

    Mutual funds are rated based on several factors, such as past performance, expense ratios and risk quotients. The leading ... Read Full Answer >>
  5. When are mutual funds considered a bad investment?

    Mutual funds are considered a bad investment when investors consider certain negative factors to be important, such as high ... Read Full Answer >>
  6. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  7. Why do mutual fund companies charge management fees?

    Mutual funds charge management fees to cover their operating costs, such as the cost of hiring and retaining investment advisors ... Read Full Answer >>
  8. Can mutual funds invest in MLPs?

    Mutual funds invest in a wide variety of securities, including master limited partnerships, or MLPs. Because MLPs exhibit ... Read Full Answer >>
  9. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  10. What are some of the most popular ETFs that track the retail sector?

    Some of the most popular exchange-traded funds (ETFs) that track the retail sector include the iShares S&P Global Consumer ... Read Full Answer >>
  11. Why is the 12b-1 fee controversial?

    The 12b-1 fee is controversial because it is charged to mutual fund shareholders, essentially making the shareholders bear ... Read Full Answer >>
  12. Are Class A mutual funds a better choice for long-term investments or short-term ...

    A shares are a particular class of mutual funds available to investors, usually through financial advisers. This class of ... Read Full Answer >>
  13. What are the most common mutual funds for investing in the real estate sector?

    Some of the most popular mutual funds for investing in the real estate sector are the Fidelity Series Real Estate Equity ... Read Full Answer >>
  14. What are common mutual funds an investor should consider for investing in oil and ...

    Among popular oil and gas mutual funds for investors to consider, some of the best performing funds, as of January 2015, ... Read Full Answer >>
  15. What are the benefits of using target date fixed-income ETFs?

    The benefits for investors of using target-date, fixed-income exchange-traded funds (ETFs) include increased liquidity and ... Read Full Answer >>
  16. In what situations would mutual fund fees be higher than ETF fees?

    While there are exceptions to the rule, mutual fund fees are generally higher than fees for exchanged-traded funds (ETFs). ETFs ... Read Full Answer >>
  17. How can I calculate the tracking error of an ETF or indexed mutual fund?

    Calculate the tracking error of an indexed exchange-trade fund (ETF) or mutual fund by doing a standard deviation percentage ... Read Full Answer >>
  18. What mutual funds can be used for investing in the industrial sector?

    The industrial goods sector provides investors access to companies that engage in activities such as aerospace and defense, ... Read Full Answer >>
  19. What is the difference between exchange traded funds (ETFs) and closed end funds?

    Investors have a number of options available to them when it comes to investing in pooled funds. While mutual funds offer ... Read Full Answer >>
  20. Besides stocks, what other asset classes can I invest in through ETFs?

    One of the main advantages of exchange-traded funds (ETFs) is that they offer investors the opportunity to invest in an extremely ... Read Full Answer >>
  21. What is the most important section in an investment company's prospectus?

    It is important for investors to examine all information contained within an investment company’s prospectus. However, the ... Read Full Answer >>
  22. What are the most popular mutual funds that invest primarily in the insurance sector?

    Under the purview of the financial services industry, the insurance sector is an attractive investment option for mutual ... Read Full Answer >>
  23. What are the best mutual funds for investing in the electronics sector?

    Within the technology sector, the electronics industry continues to experience growth as the technology that supports producing ... Read Full Answer >>
  24. How do waivers, reimbursements and recoupments affect a fund's expense ratio?

    Waivers, reimbursements and recoupments can initially serve to keep a fund's expense ratio lower than it would be otherwise. ... Read Full Answer >>
  25. What are some popular mutual funds that give exposure to the drugs sector?

    The pharmaceutical industry has experienced outstanding growth in the 10 years leading up to 2015, consistently outperforming ... Read Full Answer >>
  26. What information does the SEC require in an investment company's prospectus?

    A prospectus is the document provided by registered investment companies to investors that is meant to assist them in making ... Read Full Answer >>
  27. Why do index funds tend to have low expense ratios?

    Index funds tend to have low expense ratios because there is less active management required to run them. There is less turnover ... Read Full Answer >>
  28. When is an expense ratio considered high and when is it considered low?

    A number of factors determine when an expense ratio is relatively high or low, but a good, low expense ratio is generally ... Read Full Answer >>
  29. Why is a mutual fund's expense ratio important to investors?

    A mutual fund's expense ratio is very important to investors because fund operating and management fees can have a large ... Read Full Answer >>
  30. What are some of the limitations of only looking at the rate of return for an investment?

    Analyzing investment performance over a specific time frame is a tool commonly used by investors to compare investments opportunities ... Read Full Answer >>
  31. What kinds of expenses are included in the expense ratio?

    Investors who utilize mutual funds or exchange-traded funds (ETFs) in their investment strategies must take into consideration ... Read Full Answer >>
  32. What are the most common ETFs that track the financial services sector?

    The Standard & Poor's Depositary Receipt (SPDR) Financial Select Sector Fund (XLF) has net assets of $17.73 billion and ... Read Full Answer >>
  33. What are some of the most popular mutual funds for investing in the metals and mining ...

    Mutual funds are one of the many investment options available for growth investors looking for a portfolio that includes ... Read Full Answer >>
  34. What are the most popular mutual funds that give exposure to the railroads sector?

    The railroad industry makes up nearly half of North American freight transportation from city to city and can provide dependable ... Read Full Answer >>
  35. What are the advantages and disadvantages of mutual funds?

    Mutual funds are currently the most popular investment vehicle and provide several advantages to investors, including the ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  2. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  3. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  4. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  5. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  6. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
Trading Center