In the context of mutual funds, what does the expense ratio express?

The expense ratio is a critical measure in the context of mutual funds, as it expresses the annual fee charged by the fund as a percentage of its total assets. This percentage encompasses various operating expenses, including management fees, administrative costs, and other expenses incurred by the fund to operate effectively.

Understanding the expense ratio is crucial for investors because a higher expense ratio can significantly reduce an investor's overall returns over time. Conversely, funds with lower expense ratios can be more appealing as they allow a greater proportion of returns to be passed on to investors. Thus, the expense ratio directly impacts an investor's net investment return and is an essential factor to consider when evaluating mutual funds.