What it is
An expense ratio represents the amount of money needed to operate a managed fund, like a mutual fund or Unit Investment Trust Fund (UITF). It is expressed as a percentage of the fund’s total assets.
The percentage is calculated by dividing a fund's total expenses by its total assets. Here's the formula:
Expense ratio = (Total fund expenses / total assets under management) x 100
Let's say Fund A had a total of P6 billion in assets and P30 million in expenses for the year 2024. Here's how to find the expense ratio:
Expense ratio = (P30 million / P6 billion) x 100
Given the formula, Fund A has a 0.5% expense ratio.
What it means for you
Investors generally prefer a low expense ratio since this means a fund’s expenses won’t take too much out of its potential earnings. The lower the ratio, the higher the amount you might actually earn from a fund.
A fund’s expense ratio covers management fees, administrative costs, and other expenses for running the fund. It might not include transaction costs or additional fees such as entry and exit fees or taxes, if any.
You’ll find information about a fund’s assets, expenses, and fees from its financial statements.
When choosing an investment fund, it’s wise to weigh the costs against the possible benefits to find out whether the fees are worth paying for.
