What is etf expense ratio

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More from. When researching or looking at information on ETFs or mutual funds, one of the first pieces of information to look for is the expense ratio. Expressed as a percentage, it is a management fee that is deducted from the fund's assets.

Fees for ETFs and mutual funds are deducted to pay for the fund's management and operational costs. This means they are also taken out of your earnings. The lower the fees, the more of your share of the fund's profits you get to keep.

ETF fees and expenses are typically lower compared to their investment cousins, mutual funds. If an ETF or mutual fund has an expense ratio of 0. The investment company managing the fund would deduct half of one percent from the fund's assets on an annual basis. You would receive the total return of the ETF, minus the expenses. If the fund's total return before expenses during a year is An expense ratio of 0. Most ETFs are passively managed, so their expense ratios tend to be lower than most mutual funds.

Since ETFs simply track a benchmark index, there is no need for a fund manager to research, analyze, or make trades. When these costly activities are removed, the expense of operating the fund is lower. An actively managed mutual fund, by contrast, costs more to operate, so it has higher fees. Typical expense ratios for mutual funds will range from about 0.

ETF fees, on the other hand, range from as little as 0. The lowest-cost ETFs usually have lower expense ratios than the lowest-cost index mutual funds. It has an expense ratio of just 0. Through September 30, , SPY had a year annualized return of All reviews are prepared by our staff. Opinions expressed are solely those of the reviewer and have not been reviewed or approved by any advertiser.

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Bankrate follows a strict editorial policy , so you can trust that our content is honest and accurate. Industry average mutual fund and ETF expense ratio: 0. All averages are asset-weighted. Industry averages exclude Vanguard. Sources: Vanguard and Morningstar, Inc. All investing is subject to risk, including the possible loss of the money you invest.

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