Funds & wrappers
Expense ratio
Also called OCF, TER or Ongoing charge
The annual percentage of your money a fund takes to cover its running costs.
How it works
The charge is deducted from the fund’s assets continuously, so it never appears as a bill. It simply reduces the return you see.
The difference between 0.1% and 1% sounds trivial and is not. Compounded over decades it is a large share of the final outcome.
Where it misleads people
The expense ratio excludes transaction costs inside the fund, and in some jurisdictions excludes performance fees. The total cost of ownership is always higher than the headline number.
Worked example
$100,000 growing at 7% for 30 years becomes about $761,000 with no fees, about $661,000 at 0.5%, and about $574,000 at 1%. The 1% fee cost roughly $187,000.
Related terms
- CompoundingEarning returns on the returns you already earned, so growth accelerates the longer you leave it alone.
- Transaction costsThe trading costs a fund incurs inside the portfolio, on top of its stated expense ratio.
- Tracking differenceThe plain gap between a fund’s return and its index’s return over a period.
- Performance feeAn additional charge taken as a share of returns above an agreed threshold.
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Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.