Financial Terms / E - F / Expense ratio

Expense ratio

The expense ratio shows how much a mutual fund or an ETF charges you for its expenses. The expense ratio is the cost you pay to the mutual fund house for owning one of their products. The expense ratio is usually a percentage of assets under management and is used to pay for expenses such as salaries, marketing, sales, portfolio management, administrative costs, etc.

If a mutual fund or ETF has an expense ratio of 0.3%, the fund house will reduce that amount from your returns yearly, as long as you stay invested. Passively managed funds such as index funds and ETFs generally have lower expense ratios than actively managed funds.