Expense ratio

From Financial Literacy Wiki

Expense Ratio indicates what investors pay the fund managers annually when they invest in unit trust. It usually covers advisory fees, administrative costs, distribution fees and other relevant operating expenses.

For example, if the expense ratio is 1.5% then the fund pays itself 1.5% of its assets, regardless whether it has been a good or bad year for the unit trust. Generally an actively managed unit trust would have a higher expense ratio compared to index funds.

A higher expense ratio would eat into the returns of the unit trusts thus generally speaking, a relatively lower expense ratio is better for the investor.