In personal finance, the annual fee charged by a mutual fund for operating the fund is called its expense ratio.
The expense ratio is expressed as a percentage of the fund’s assets. It generally covers operating expenses such as management, administration, recordkeeping, and other fund costs. The amount is normally reflected in the fund’s returns rather than billed as a separate invoice to each investor.
For example, a 0.50% expense ratio means annual operating expenses equal roughly 0.50% of average assets, before considering changes in asset values and other costs. Actual expenses can vary during the year.
The expense ratio is different from a sales load, which is a purchase or redemption charge in some funds. Exchange-traded funds also publish expense ratios.