what is expense ratio

An expense ratio is a measure of how much of a fund's assets are used for administrative and other operating expenses. It is typically represented as a percentage and is calculated by dividing a fund's operating expenses by the average dollar value of its assets. This ratio is important for investors as it directly impacts their returns, with lower expense ratios generally being more favorable. For example, an expense ratio of 0.2% means that for every $1,000 invested in a fund, $2 will be paid annually in operating expenses