1. What is Expense Ratio?

The expense ratio measures what percentage of a fund's assets are used for administrative and other operating expenses. 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:

• Total Fund Expenses — Annual operating costs of the fund (USD)
• Average AUM — Average assets under management during the period (USD)

Explanation: The ratio shows what percentage of assets is deducted each year for fund expenses.

3. Importance of Expense Ratio

Details: Expense ratios directly impact investor returns. Lower ratios mean more money stays invested. It's a key factor when comparing mutual funds or ETFs.

4. Using the Calculator

Tips: Enter total annual fund expenses and average AUM in USD. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

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

Q2: How often is expense ratio calculated?
A: Typically calculated annually, though the ratio is applied daily to fund assets.

Q3: Does expense ratio include all fees?
A: It includes management fees and operating expenses but not sales loads or brokerage commissions.

Q4: Why do expense ratios matter for long-term investors?
A: Even small differences compound over time, significantly affecting total returns.

Q5: Can expense ratios change?
A: Yes, funds may adjust ratios, though they tend to decline as assets under management grow.