Expense Ratio
Expense ratio is the annual cost of owning a fund, expressed as a percentage of the amount invested. It's the term most commonly used in the U.S.; the equivalent term in Canada is MER.
Why it matters
- Expense ratios are deducted automatically from fund returns — you won't see a separate bill.
- Even small differences in expense ratio compound significantly over decades.
- Low-cost index ETFs commonly charge well under 0.20%, while some actively managed funds charge 1% or more.
Simple example
- A fund with a 0.05% expense ratio costs about $5 a year per $10,000 invested.
- A fund with a 1.00% expense ratio costs about $100 a year per $10,000 invested — 20 times more.
Expense ratio vs. MER
They measure the same thing. "MER" (management expense ratio) is the standard term in Canada; "expense ratio" is standard in the U.S. Both express a fund's annual cost as a percentage of assets.