ETFs & Funds · Investing Glossary
What Is Expense Ratio?
The annual fee a fund charges, expressed as a percentage of assets.
The Full Definition
The expense ratio is the annual cost of owning a mutual fund or ETF, expressed as a percentage of your total investment. A 0.03% expense ratio on a $10,000 investment costs $3 per year. A 1.0% expense ratio costs $100 per year — and because that fee compounds against you every year, the difference between a low-cost index fund and a high-cost active fund can amount to tens of thousands of dollars over decades.
Real-World Example
VOO (Vanguard S&P 500 ETF) has an expense ratio of 0.03%. A comparable actively managed fund might charge 0.75% — 25 times more, with historical data showing most active funds still underperform the index after fees.
Related Terms
Index FundA fund that tracks a market index like the S&P 500, owning all its components.ETF (Exchange-Traded Fund)A basket of securities that trades on an exchange like a single stock.Mutual FundA pooled investment vehicle managed by a professional fund manager.Total ReturnInvestment performance including both price appreciation and income (dividends/interest).