1. What is Expense Ratio?

The Expense Ratio (ER) is a measure of what it costs an investment company to operate a mutual fund or ETF. It's expressed as a percentage of assets deducted annually from the fund.

2. How Does the Calculator Work?

The calculator uses the Expense Ratio formula:

Where:

• \( ER \) — Expense Ratio (decimal)
• \( \text{Annual Fees} \) — Total annual operating expenses (USD)
• \( \text{Fund NAV} \) — Net Asset Value of 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 directly impact investor returns. Lower 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 operating expenses and its net asset value (NAV). Both values must be positive numbers, with NAV greater than zero.

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 generally reasonable.

Q2: How often is expense ratio charged?
A: The ER is deducted daily from the fund's assets, though it's expressed as an annual percentage.

Q3: Does expense ratio include all fees?
A: It includes management fees and operating costs but typically excludes trading costs and sales loads.

Q4: Why do expense ratios matter for long-term investors?
A: Over decades, even small differences in ER can compound to significantly different final portfolio values.

Q5: How can I find a fund's expense ratio?
A: It's disclosed in the fund's prospectus and typically listed on financial websites that track fund information.