Investing Basics
Expense Ratio
The annual cost charged by a fund, shown as a percentage of assets.
Also called: fund fee, annual fund cost
What it means
An expense ratio is the percentage of fund assets used each year to cover operating costs such as management, administration, and other expenses. It is not usually paid as a separate bill. Instead, it is taken out of the fund over time.
Why it matters
Fees reduce returns. Even small percentage differences can matter more over long periods than many beginners expect.