With reference to an investment fund, expense ratio is the ratio of the fund’s operating expenses to its assets under management. It is calculated by dividing the fund’s operating expenses by the assets under management of the fund.
Expense Ratio Formula The formula to calculate the expense ratio divides the total annual operating expenses incurred by a mutual fund by the average value of the total assets managed. Expense Ratio = Total Annual Operating Expenses ÷ Average Fund Assets For example, suppose a mutual fund incurred...
ExampleAssume you have $100,000 invested in a mutual fund with a total investment of $1,000,000. The expenses to operate the fund at the end of the year totaled to $40,000. We would calculate the expense ratio like this:As you can see, the percentage of total assets that must be ...
Operating expense ratio (OER) An OER is the percentage of fund assets taken out annually to cover fund operating expenses. For example, if you have $10,000 in a mutual fund with a 0.50% expense ratio, you're paying about $50 per year in expenses. ...
Expense ratios reflect what it costs to operate mutual funds and ETFs. Learn more about what an expense ratio is.
What’s a typical expense ratio? To figure out if you’re paying too much, it helps to know how much you should be paying. These fees vary widely, even among the same type of fund. For example, a Standard & Poor’s 500 fund offered by one broker could charge significantly more than...
Imagine, for example, that a fund carries an expense ratio of 0.25. That means that for every dollar you invest into the fund, you will pay 0.25 percent in fees each year. In other words, for every $10,000 you invest in the fund, you’ll be on the hook for $25 worth ...
Mutual Fund Expense Ratio Formula Expense Ratio = Total Operating Expenses Average Net Asset ValueThe expense ratio is an important metric when comparing funds, because it can make a big difference over time. Money paid for expenses is not invested and earns no profit. High expenses are not ...
As a general rule, mutual funds that invest in large companies should have an expense ratio of no more than 1%, while a fund that focuses on small companies or international stocks should have an expense ratio lower than 1.25%. What Is an Expense Ratio?
How the Total Expense Ratio (TER) Works The size of the TER is important to investors as the costs are withdrawn from the fund, affecting investors’returns. For example, if a fund generates a return of 7% for the year but has a TER of 4%, then the 7% gain is greatly diminished to...