ETF & Mutual Fund Expense Ratio Calculator

Expense Ratio Calculator: A Quick Guide

See what a fund's expense ratio costs you over time. Compare two ETFs or mutual funds that earn the same return before fees and differ only in their expense ratio, with an optional contribution per month, quarter or year. Everything is calculated in your browser.

What is an expense ratio?

The expense ratio is the yearly cost of owning an ETF or mutual fund, given as a percentage of the money you have in it. It covers the fund's management fee, its administrative costs and any 12b-1 marketing fee. A fund with a 0.50% expense ratio takes $5 a year for every $1,000 invested.

You never get a bill for it. The fund takes it from its own assets a little every day, so its share price grows a bit less than the investments it holds. A broad index ETF or index mutual fund often costs 0.03% to 0.20% a year, while an actively managed fund commonly charges 0.50% to 1% or more.

One percentage point looks small, but it is taken every year from your whole balance, and the money it takes can no longer grow. Over decades that adds up to a large part of what you end up with.

How to use the Expense Ratio Calculator

1. Enter your initial investment and, if you invest regularly, a contribution per month, quarter or year.
2. Enter the period in years and the return before fees: the yearly return you expect from the investments themselves. The field starts at 7.2%, the return that doubles your money about every 10 years (the rule of 72: 72 / 7.2 = 10). No one knows the future return, so try a lower one too.
3. Enter each fund's expense ratio, in percent per year. You find it on the fund's page, in its fact sheet or in its prospectus.
4. Read the result: what the investment would be worth before fees and in each fund, how much each fund lost to fees, and how far the cheaper fund is ahead. Move over the chart, or touch it, to see the values for any year. The table lists every year.

How the values are calculated

Both funds earn the same return, and each loses its expense ratio from its value every year. One year of growth is:

growth = (1 + return) * (1 - expense ratio)

With a 7.2% return and a 1% expense ratio that is 1.072 * 0.99 = 1.06128, a net return of 6.128% a year. A single investment then grows as compound interest:

value = initial investment * growth^years

A contribution is added at the end of each month, quarter or year, and grows at the same yearly rate from then on. With p contributions a year, the growth per period is q = growth^(1 / p), and after n periods:

value = initial investment * q^n + contribution * (q^n - 1) / (q - 1)

The value before fees uses the same formulas with an expense ratio of 0. With no fees and a contribution per year, the result is the same as the Compound Interest Calculator gives with yearly compounding.

Example: a single investment

$10,000 is invested for 30 years at a 7.2% return before fees, once in an index ETF with a 0.03% expense ratio and once in a mutual fund with a 1% expense ratio. Before fees, the money doubles about every 10 years, three times in all:

The cheaper fund ends $20,234.98 ahead, 34% more, and twice the amount invested. The gap is $1,856.36 after 10 years and $7,074.24 after 20, so most of it comes in the last years: the cost compounds just as the return does.

For a single investment, the share a fee takes doesn't depend on the return at all. A 1% expense ratio over 30 years takes 1 - 0.99^30, about 26% of the final value, in good markets and bad ones. A 0.03% expense ratio takes less than 1%.

Example: with a monthly contribution

The same $10,000, plus $500 at the end of every month. Over 30 years, $190,000 is invested:

The cheaper fund ends $124,703.25 ahead. The 1% expense ratio costs $129,022.22, about two thirds of everything that was invested.

What the calculator leaves out

• A different return before fees. Both funds get the same return. An actively managed fund may earn more or less than an index fund before its fees. The calculator shows only what the fees cost.
• Other costs. Sales loads, trading commissions, an advisor's fee and the fund's own trading costs are not part of the expense ratio. To include a yearly advisor fee, add it to the expense ratio.
• Taxes on dividends and capital gains.
• Good and bad years. The return is the same every year here, while markets rise and fall.

Frequently asked questions

What is a good expense ratio?

For a broad index fund, 0.10% a year or less is easy to find, and the largest S&P 500 and total market funds charge about 0.03%. For an actively managed fund, under 0.50% is low and over 1% is high. Compare funds of the same kind: among funds that hold the same investments, the expense ratio is the main difference between them.

How is the expense ratio charged?

It is taken from the fund's assets a little each day and is already in the price you see. You don't pay it separately and it doesn't show on your statement. The calculator takes it from the fund's value once a year, which comes to nearly the same.

Do ETFs have lower expense ratios than mutual funds?

Often, but not always. Most ETFs follow an index, which is cheap to run, while many mutual funds are actively managed. An index mutual fund can cost as little as an index ETF, and an actively managed or specialized ETF can cost as much as a mutual fund. Compare the two numbers, not the labels.

Is the expense ratio the same as a TER or an MER?

In practice, yes. Expense ratio is the American term, TER (total expense ratio) the European one and MER (management expense ratio) the Canadian one. Each is a fund's yearly running cost as a percentage of its assets, so the calculator works for all three.