Expense ratio
The yearly running cost of a fund, quoted as a percentage of the money you hold in it and taken out of the fund's assets rather than billed to you separately.
The expense ratio covers a fund's management fee and its running costs, expressed as a yearly percentage of assets. No bill ever arrives. A slice of the figure comes out of the fund's assets each day the fund is valued, so the price you see is already net of the fee and the return you see is already reduced by it.
It is the easiest cost in investing to compare, because it is quoted in the same units whatever the fund, though a fund sold in Europe usually prints the same idea as an ongoing charges figure. An index fund usually sits far below an active fund, since following a published rule costs less than employing people to pick holdings. The gap compounds: a fund charging 0.60 percent a year rather than 0.05 percent gives up more than half a percentage point of return annually, and across 30 years that is worth roughly 15 percent of the final balance.
Two mistakes are common. The first is reading a small percentage as a small number, when it is charged on the entire balance every year for as long as the fund is held. The second is treating it as the whole cost. Sales loads, brokerage commissions, the gap between bid and ask on an ETF, and the tax due on distributions all sit outside it, as do the trading costs the fund runs up inside the portfolio.