Expense Ratio is the amount of a mutual fund’s expenses relative to its assets. The higher the expense ratio, the lower the investor’s return. A mutual fund’s expense ratio tells an investor how efficiently a mutual fund operates not how profitable the mutual fund is.
Applying "Expense Ratio" to Securities Exams:
When an investor is considering a mutual fund investment the investor must look at the fees and expenses the fund charges as well as the fund’s performance. Expenses that are charged to investors reduce the investor’s return. Over time a mutual fund that has a high expense ratio can significantly impact the fund’s performance.