Expense Ratio
Expense ratios reflect the percentage of a fund’s assets that fund various costs, including management, legal and auditing fees. Many mutual funds and ETFs deduct the cost of their expense ratios from the fund’s net asset value (NAV) daily. As an investor, an expense ratio tells you how much you’ll pay to invest as a percentage of assets under management (AUM). For example, an expense ratio of 0.5% costs $50 annually for every $10,000 you invest. Passive funds generally charge lower expense ratios than actively-managed funds that incur higher management costs. Investors should analyze and compare expense ratios across funds, as higher operating costs reduce the fund’s assets and investor returns.
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