What Is an Expense Ratio?
An expense ratio is the yearly fee a fund charges, as a percentage of your investment. How it's taken, what it covers, and how much a small difference costs over decades.
In one sentence
Expense ratio. A fund's yearly operating costs, shown as a percentage of the money invested in it.
How it works
The expense ratio is a yearly percentage of your investment that pays a fund's operating costs, including management fees.1 You never see a bill: it's taken from the fund's assets a little at a time, so the returns the fund reports are already after it.
| Expense ratio | Cost this year |
|---|---|
| 0.03% | $15 |
| 0.50% | $250 |
| 1.00% | $500 |
The fee is charged on the whole balance every year, so as the balance grows, so does the cost. Over 30 years at a 7% return before fees, $10,000 grows to about $75,100 with a 0.05% fee and about $57,400 with a 1.00% fee.
Other costs
The expense ratio isn't the only cost. Some mutual funds charge sales loads or 12b-1 fees for marketing and distribution, and ETFs come with a bid-ask spread when you trade.1
Learn it properly
- Settlement, Fees, and Fractional SharesPart 1: Foundations · Free
- Mutual Funds vs. ETFsPart 2: What You Can Own · Free
- 401(k)s and Other Workplace PlansPart 6: Strategy, Behavior, Accounts, and Taxes
Notes and sources
- Investor.gov, U.S. Securities and Exchange Commission. Mutual Fund and ETF Fees and Expenses: Investor Bulletin. Checked 2026-09-30. Back to text