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An expense ratio is the cost of owning a mutual fund or ETF. Think of the expense ratio as the management fee paid to the fund company for the benefit of owning the fund.
Exchange traded funds, or ETFs, are one of the most important financial instruments in modern stock markets. What Is an ETF Expense Ratio? Here’s What Investors Should Know
The expense ratio of a stock or asset fund is the total percentage of fund assets used for administrative, management, advertising (12b-1), and all other expenses. An expense ratio of 1% per annum means that each year 1% of the fund's total assets will be used to cover expenses. [1]
The asset-weighted average expense ratio of a stock index ETF was 0.16 percent in 2022, according to the Investment Company Institute, and the number has been falling for the last decade. It was ...
The total expense ratio (TER) is a measure of the total cost of a fund to an investor. Total costs may include various fees (purchase, redemption, auditing) and other expenses. The TER, calculated by dividing the total annual cost by the fund's total assets averaged over that year, is denoted as a percentage. It will normally vary somewhat from ...
Factor ETFs tend to have slightly higher expense ratios and volatility than strictly passive index ETFs. [46] [47] [48] Synthetic ETFs, which are common in Europe but rare in the United States, are a type of index ETF that does not own securities but tracks indexes using derivatives and swaps. They have raised concern due to lack of ...
In contrast, an ETF charges an ongoing expense ratio, with a fee as a percentage of your invested assets. Those are a few key differences between stocks and ETFs and what they mean for investors.
One notable component of the expense ratio of U.S. funds is the "12b-1 fee", which represents expenses used for advertising and promotion of the fund. 12b-1 fees are paid by the fund out of mutual fund assets and are generally limited to a maximum of 1.00% per year (.75% distribution and .25% shareholder servicing) under FINRA Rules.