Expense Ratio
✓ Last verified 14 Sep 2026
The short version
Expense ratio is the annual fee a mutual fund charges, expressed as a percentage of your investment - it's deducted automatically from returns, so you never see it as a separate bill, but it compounds against you every year.
An expense ratio of 1% means the fund deducts 1% of assets annually to cover management, research, and operating costs - directly reducing your net return, regardless of whether the fund performs well or poorly. Because it compounds year after year rather than being a one-time cost, a seemingly small gap (say 1% vs. 0.2%) between two funds' expense ratios can amount to a large difference in final corpus over 15-20 years. Index funds typically carry much lower expense ratios than actively managed funds, since there's little active research or trading involved.
Want this worked out for your own numbers?