expense ratio

Meanings

1. 1nouncountablefinance

   The percentage of a fund's assets that is taken each year to pay for running the fund.

   Grammar: Countable: a fund has an expense ratio, and you can compare expense ratios of different funds.

   Patterns

   • a fund's expense ratio
   • a low/high expense ratio
   • an expense ratio of 0.5%

   The index fund has an expense ratio of just 0.03%, so very little of your money goes on fees.

   Before you invest, compare the expense ratios of the two funds; the difference adds up over many years.

   A high expense ratio does not always mean better management, but it does mean less of your return stays with you.

2. 2nouncountablefinancebusiness

   The share of premium income that an insurance company spends on operating costs rather than paying claims.

   Grammar: Countable and usually used with 'an' or a number: an expense ratio of 25%.

   Patterns

   • an expense ratio of something
   • keep the expense ratio low

   The insurer reported an expense ratio of 24%, meaning about a quarter of premiums went on administration.

   Regulators watch the expense ratio closely to check that too much premium income is not lost to overheads.

Word forms

Common combinations

a low expense ratio

Young investors often prefer a low expense ratio because costs compound against you.

a high expense ratio

Actively managed funds usually carry a high expense ratio.

compare expense ratios

It is worth comparing expense ratios before you open an account.

an expense ratio of X percent

The fund advertises an expense ratio of 0.10 percent.

the fund's expense ratio

Check the fund's expense ratio in the prospectus.

Synonyms and how they differ

fee

A general word for any charge; 'expense ratio' is the specific yearly cost figure for a fund or insurer.

management fee

Usually one part of the expense ratio, covering the manager's work, while the expense ratio includes other running costs too.

cost ratio

A broader business term for costs compared with income or assets, not tied to investment funds.

Word family

expense noun

Money you spend on something; the base word of the phrase.

expenses noun

Regular costs of doing something, such as travel expenses.

ratio noun

A relationship between two amounts, often written as two numbers or a percentage.

Commonly confused: expense ratio or expense account?

Practice

Make it your own

Write a sentence using “expense ratio”, then check it and compare it with the examples above.

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