Funds 101
What Is an Expense Ratio? Why Fund Fees Matter
What an ETF or mutual fund expense ratio is, how much it costs you over time, and how to compare funds.
Beginner investing lessons and fake-money practice from the maker of Quoliv.
Quick answer
An expense ratio is the yearly fee a fund charges, shown as a percentage of your investment. A 0.20% expense ratio costs €2 a year for every €1,000 invested. It's taken from the fund automatically, so you never see a bill, but over decades small differences can add up to thousands.
What you’ll learn
- The expense ratio is a yearly percentage fee charged by a fund.
- It's deducted inside the fund, not billed to you.
- Index funds and ETFs often have lower ratios than actively managed funds.
- Small fee differences compound over long periods.
- It's not the only cost: check trading and account fees too.
This explanation is part of our ETFs & Funds lessons path, where you can explore the idea in short lessons and quizzes.
What it costs per year
| Expense ratio | Cost on €1,000 | Cost on €10,000 |
|---|---|---|
| 0.10% | €1 | €10 |
| 0.50% | €5 | €50 |
| 1.00% | €10 | €100 |
Why small fees grow big
Fees are taken every year from a balance that's hopefully growing. Money paid in fees also stops compounding for you. Over 20 or 30 years, a fund charging 1% can leave you noticeably less than a similar fund charging 0.1%, even if both earn the same before fees.
How to compare funds
- Compare expense ratios between funds that track similar things.
- Find the ratio in the fund's factsheet or key information document.
- Look at other costs too: trading commissions, currency fees, account fees.
- Cheapest isn't automatically best, but higher fees need a good reason.
You can't control the market. You can control what you pay.
Sources and methodology
This guide was written for education using the primary sources below. It does not evaluate your finances or recommend an investment. Read our editorial policy.