Which term describes a small yearly fee paid to invest in a fund, shown as a percent?

• A. ROI (Return on Investment)
• B. Expense Ratio
• C. Market Index
• D. Micro-Investing

Answer: (B)

The concept being tested is how fund fees are described. The small yearly fee paid to invest in a fund, shown as a percent, is called the expense ratio. It represents the annual costs of running the fund (such as management and administration) as a percentage of the fund’s assets and is deducted from your investment returns. It’s not a measure of how well the investment performs (ROI), not a market benchmark (market index), and not a way to invest in tiny amounts (micro-investing). For example, an expense ratio of 0.50% on a $10,000 investment costs about $50 per year, reducing your returns by that amount regardless of how the fund performs. Lower expense ratios can help you keep more of your gains over time, though it’s important to consider overall performance and fit with your goals as well.