What is an expense ratio?
An expense ratio is a fund's annual operating expenses expressed as a percentage of its average net assets. It covers costs such as management and administration. ETF and mutual fund operating expenses are paid from fund assets, so you generally do not see a separate charge in your brokerage account. The fund's prospectus fee table is the best place to check the current figure for the exact share class you own.
Expense ratio formula and a simple example
Expense ratio = annual fund operating expenses ÷ average net assets × 100
If a fund spends $50,000 operating an average of $10 million in assets, its expense ratio is 0.50%. On a balance that stayed at $10,000 for a full year, 0.50% is about $50. The dollar cost changes as your balance changes; a growing portfolio generally incurs larger dollar fees even if the percentage stays the same.
How this calculator models fee drag
The calculator starts both funds with the same amount, monthly contribution, investment period, and assumed gross return before fund fees. Each month it applies one-twelfth of the annual return, estimates one-twelfth of each annual expense ratio on that month's opening balance, then adds the contribution at month-end. It also calculates a no-fee reference using the same assumptions. This is a simplified illustration: real returns and fees vary, and the result does not include taxes, trading costs, or advisory fees.
“Estimated fees paid” means the sum of the monthly fund-fee estimates. “Fee drag” is bigger when money lost to fees would otherwise have remained invested and compounded. A lower expense ratio does not, by itself, mean a fund will perform better: holdings, risk, tracking, taxes, and other costs matter. Compare similar funds if you want to isolate costs.
Gross versus net returns: avoid counting fees twice
Enter an assumed return before fund operating expenses. A fund's published historical return generally already reflects those expenses. If you put an already-net historical return into the gross-return field and subtract the expense ratio again, you will overstate the fee impact. Historical returns are not a forecast of future returns.
ETF, mutual fund, and 401(k) costs
This calculator works for ETFs and mutual funds because both can charge an expense ratio. A 401(k) investment may also carry separate plan-administration or advisory costs, which are not necessarily included in the underlying fund's expense ratio. Mutual funds can have sales loads; ETFs can have brokerage commissions or trading costs. Check the fee disclosures before treating two investments as comparable.
Where to find a fund's expense ratio
Look for “Total Annual Fund Operating Expenses” in the prospectus fee table. If a fee waiver is in effect, review both the gross and net expense ratios and when the waiver expires. You can use the Wisesheets ETF directory to research a fund, then confirm its fee in the issuer's current documents. For more detail on what fund fees do and do not include, see the SEC Investor Bulletin on mutual fund and ETF fees.
