1. What is Expense Ratio?

The expense ratio is a measure of what it costs an investment company to operate a mutual fund or ETF. It's calculated by dividing a fund's operating expenses by the average dollar value of its assets under management (AUM).

2. How Does the Calculator Work?

The calculator uses the expense ratio formula:

Where:

• Operating Expenses — Total annual costs of running the fund (USD)
• AUM — Total assets managed by the fund (USD)

Explanation: The ratio shows what percentage of the fund's assets are used for administrative and other operating expenses.

3. Importance of Expense Ratio

Details: Expense ratios are important because they directly affect investor returns. Lower expense ratios generally mean higher returns for investors, all else being equal.

4. Using the Calculator

Tips: Enter operating expenses and AUM in USD. Both values must be valid (expenses ≥ 0, AUM > 0). The result will show both decimal and percentage formats.

5. Frequently Asked Questions (FAQ)

Q1: What is a good expense ratio?
A: For index funds, under 0.20% is excellent. For actively managed funds, under 1.00% is generally reasonable.

Q2: How often is expense ratio calculated?
A: Typically calculated annually, but expressed as an annualized percentage of average AUM.

Q3: What costs are included in operating expenses?
A: Management fees, administrative costs, marketing (12b-1 fees), and other operational costs.

Q4: Does expense ratio include trading costs?
A: No, transaction costs from buying/selling securities are separate and not included in the expense ratio.

Q5: Why do expense ratios vary between funds?
A: Factors include fund type (active vs. passive), asset class, fund size, and management strategy.