1. What is the Expense Ratio?

The expense ratio represents the percentage of a fund's assets that 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:

• Fund Expenses — Total annual operating costs of the fund (USD)
• AUM — Assets Under Management, the total market value of the fund (USD)

Explanation: The ratio shows what percentage of the fund's assets are used to cover expenses each year.

3. Importance of Expense Ratio

Details: The expense ratio is a key metric for comparing funds. Lower expense ratios mean more of the fund's returns are passed to investors rather than being consumed by fees.

4. Using the Calculator

Tips: Enter the fund's total annual expenses and its assets under management in USD. Both values must be positive numbers, with AUM greater than zero.

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 does expense ratio affect returns?
A: The expense ratio is deducted from the fund's returns, so higher ratios reduce investor returns over time.

Q3: Are there different types of expense ratios?
A: Yes, some funds report gross and net expense ratios. The net ratio reflects any fee waivers or reimbursements.

Q4: Is expense ratio the only cost to consider?
A: No, investors should also consider transaction costs, loads, and other fees that may not be included in the expense ratio.

Q5: How often is expense ratio calculated?
A: It's typically calculated annually, but the ratio is applied daily based on the fund's average AUM.