Expense Ratio
Expense is the annual fee charged by a mutual fund to cover its operating costs, including fund management, administration, and other related services. Expense ratio is the expense expressed as a percentage of the fund’s average assets under management. This fee compensates the fund manager for tasks such as research, stock selection, and portfolio management. A lower expense ratio means a larger portion of an investor’s money remains invested, potentially leading to better net returns. Conversely, a higher expense ratio reflects higher costs, which can reduce overall gains. It is an important factor when assessing the cost-efficiency of a mutual fund.
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