DEFINITION of 'Expense Limit'

A limit placed on the operating expenses incurred by a mutual fund. The expense limit is expressed as a percentage of the fund's average net assets and represents a cap to the fees a shareholder may be charged.

BREAKING DOWN 'Expense Limit'

Expense limits are often voluntarily placed on a fund by its manager. The addition of an expense limit can make a fund more attractive, as investors are fully aware of the maximum percentage they may be charged. With an expense limit, fees will never be above the stated percentage; however, the fund may charge under the stated limit. Funds that use an expense limit are referred to as capped funds, since the limit caps the fees that shareholders can be charged.

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