The annual fee charged by a fund, expressed as a percentage of assets.
An expense ratio is the annual cost of owning a mutual fund or ETF, expressed as a percentage of the fund's assets under management. For example, a fund with a 0.5% expense ratio on a $10,000 investment costs $50 annually. Expense ratios cover fund management, administration, distribution, and other costs. Passive index funds typically have very low expense ratios (0.03% to 0.20%), while actively managed funds have higher ratios (0.5% to 2% or more). The difference seems small, but compound over decades: on a $10,000 investment growing at 7% annually, a 0.5% expense ratio versus a 1.5% ratio costs about $40,000+ in lost growth over 30 years. This is why low-cost index funds are often recommended—you keep more of your returns.