Expense Ratio
The percentage of total fund assets that is used to cover expenses associated with the operation of a mutual fund. This amount is taken out of the fund's assets and lowers the return that fund holders achieve. These expenses include management fees and operating expenses. The management fee is the fee that is charged to the fund by the portfolio manager, and it is often a fixed percentage. The operating expenses are the expenses that the fund incurs through operation and this can include brokerage fees, taxes, investor services, and interest expenses.
Also known as the "management expense ratio" (MER).
Investopedia Commentary
The amount of the MER is usually dependent on how active the portfolio manager is in the trading of the fund an actively managed fund will have a higher ratio than an index fund, for instance. It is important for investors to be aware of the MER as it affects the rate of return that an investor in the fund achieves. The amount of the MER must be stated in the fund's prospectus.
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See also: 12B-1 Fees, Active Management, Contingent Deferred Sales Charge - CDSC, Expenses, Index Fund, Mutual Fund, Operating Expense, Passive Management, Portfolio Manager, Prospectus
Also spelled: management expense ratio, MERMER
expense ratio