Glossary
Expense ratio
The yearly fee a fund charges to cover its operating costs, quoted as a percentage of the fund's assets, so what you pay tracks the size of your holding.
Updated September 15, 2026
An expense ratio is the yearly fee a fund charges, quoted as a percentage of the fund's assets. It covers the fund's running costs, including paying the people who manage and administer it.
At a 0.50 percent expense ratio, a $1,000 holding pays about $5 over a year. You never write a check for it. The fee comes out of the fund's assets gradually, so it is already reflected in the return the fund reports, whether the fund gained or lost.
A fund must show its fees in a standardized table in the prospectus, the fund's legal description. The expense ratio appears there under annual fund operating expenses. It does not cover every cost, for example a sales charge or a broker's commission. A lower ratio reduces what holding a fund costs, but says nothing about how it will perform.
Related terms
Used in these lessons
How this definition was made
- Written by an AI model (Claude) following Teloria's editorial standard.
- Every factual claim was checked by a separate AI fact-check against official US government and regulator sources.
Official sources consulted
- investor.gov · /introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/mutual-fund-and-etf-fees-and-expenses-investor-bulletin
- sec.gov · /resources-for-investors/investor-alerts-bulletins/ib_mfprospectus2
- investor.gov · /introduction-investing/investing-basics/glossary/prospectus