ETF Expense Ratio

ETF Expense Ratio refers to the annual fee that an exchange-traded fund (ETF) charges its shareholders, expressed as a percentage of the fund’s average net assets. This fee covers various operational costs, including management fees, administrative expenses, and other costs associated with running the fund. A lower expense ratio generally indicates a more cost-effective investment, as it reduces the overall Returns for the investor.

For example, if an ETF has an expense ratio of 0.5%, this means that for every $1,000 invested, $5 will go toward the fund’s expenses each year. In contrast, an ETF with an expense ratio of 1.0% would charge $10 for the same investment amount, potentially diminishing the investor’s returns.

In practical terms, consider two ETFs that both track the same Index. ETF A has an expense ratio of 0.2%, while ETF B has an expense ratio of 0.8%. If both ETFs perform equally well, over time, ETF A would likely yield better returns due to its lower costs.