Expense Ratio

Expense ratio is a percentage of total fund assets that is used to cover expenses associated with the operation of a mutual fund. This amount is taken out of the fund’s assets and lowers the return that fund holders achieve.

This amount covers the fund’s management fees and operating expenses. The management fee is the fee that is charged to the fund by the portfolio manager. The operating expenses are the expenses that the fund incurs through operation and this can include brokerage fees, taxes, investor services and interest expenses.

In term of how expense ratio affects you, you should keep the expense ratio as low as possible to maximize your investment performance.  The impact of expense ratio on your investment performance over a long period of time could be quite significant.