The formula to calculate the annual expense ratio is:
\[ ER = \left( \frac{E}{A} \right) \times 100 \]
Where:
An expense ratio is a measure of the cost of managing and operating an investment fund, expressed as a percentage of the fund’s total assets. It includes management fees, administrative fees, and other operational costs. The expense ratio is an important metric for investors, as it directly impacts the net returns of the investment. A lower expense ratio indicates a more cost-efficient fund, while a higher expense ratio can erode investment returns over time.
Let's assume the following values:
Using the formula to calculate the expense ratio:
\[ ER = \left( \frac{5,000}{200,000} \right) \times 100 = 2.5 \% \]
The expense ratio is 2.5%.
