Expense ratio

A mutual fund company's cost of doing business. It includes the fund's management fee as stated in the Simplified Prospectus. Price and performance is always shown net of this percentage which is charged against assets held by the fund.

An expense ratio is the percentage of a mutual fund's or variable annuity's total assets deducted to cover operating and management expenses.

Those expenses include employee salaries, custodial and transfer fees, distribution, marketing, and other costs of offering the fund or contract. However, they don't cover trading costs or commissions.

For example, if you own shares in a fund with a 1.25% expense ratio, your annual share is $1.25 for every $100 in your account, or $12.50 on an account valued at $1,000.

Expense ratios vary from one fund company to another and among different types of funds. Typically, international equity funds have among the highest expense ratios, and index funds among the lowest. Similar differences in expense ratios are characteristic of different variable annuity investment accounts.