Glossary
What Is an Expense Ratio? Definition and Example
An expense ratio is the yearly fee a fund charges, shown as a percentage of the money invested. A 0.10% ratio costs about 1 per 1,000 invested each year.
What it means
The fee is taken from the fund's assets, so you do not see a bill, but it reduces your return every year. Over decades, small differences add up. Compare expense ratios for similar funds, together with tracking quality and other costs such as brokerage and currency conversion.
Example
On 10,000 invested, a 0.05% ratio costs about 5 a year, while a 1% ratio costs about 100 a year.
Why it matters
Costs are one of the few things you can control as an investor.
Related terms
- ETF (Exchange-Traded Fund): An ETF, or exchange-traded fund, is a fund that holds a basket of investments, such as shares, and trades on.
- Index Fund: An index fund is a fund designed to match the performance of a market index, such as the S&P 500, by holding.
- Portfolio Diversification: Portfolio diversification means spreading your money across different assets, sectors and regions so that one.
Learn this live, for free
Join the free 90-minute live masterclass, every Friday, 7 PM IST (India) or 7 PM ET (everywhere else). No tech background needed.
Register for the masterclass nowEducation only. This glossary is general information, not financial, legal or career advice.
Frequently asked questions
Is a low expense ratio always better?
Cost matters, but compare what the fund holds and how closely it follows its index too.
Where do I find a fund's expense ratio?
On the fund's factsheet or the provider's website.
Do I pay it separately?
No. It is deducted from the fund's assets.