1. What is Expense Ratio?

The expense ratio measures what it costs an investment company to operate a mutual fund or ETF. It's expressed as a percentage of the fund's average net assets and includes management fees, administrative costs, and other operational expenses.

2. How Does the Calculator Work?

The calculator uses the Expense Ratio formula:

Where:

• Total Fund Expenses — All annual operating costs of the fund
• Average Net Assets — The average value of the fund's assets over the period

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

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. It's a key factor when comparing similar funds.

4. Using the Calculator

Tips: Enter total fund expenses and average net assets in dollars. 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 generally reasonable.

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

Q3: Does expense ratio include trading costs?
A: No, transaction costs are separate and not included in the expense ratio.

Q4: Why do expense ratios vary?
A: They vary based on fund type (index vs active), asset class, and fund size (larger funds often have lower ratios).

Q5: Is a lower expense ratio always better?
A: Generally yes, but sometimes higher costs may be justified by superior performance or specialized strategies.