Enter the gross investment return and the expense ratio into the calculator to determine the net return of the investment. This calculator can also evaluate any of the variables given the others are known.

Impact Of Expense Ratio Formula

The following formula is used to calculate the impact of the expense ratio on the net return of an investment. 

NR = (GI - (GI * ER))

Variables:

  • NR is the net return of the investment ($)
  • GI is the gross investment return ($)
  • ER is the expense ratio (decimal)

To calculate the net return of the investment, subtract the product of the gross investment return and the expense ratio from the gross investment return. This will give you the net return after the expense ratio has been deducted.

What is the Impact Of Expense Ratio?

The expense ratio of a mutual fund or ETF (Exchange Traded Fund) is the total percentage of fund assets used for administrative, management, advertising, and all other expenses. An expense ratio impacts the net return an investor gets from the fund. A higher expense ratio means the fund has higher operating costs, which are passed on to investors and can eat into your investment returns over time. Conversely, a lower expense ratio means fewer costs are deducted and investors could potentially receive higher returns. Therefore, when choosing a fund, investors should consider the expense ratio as it directly affects their overall investment performance.

How to Calculate Impact Of Expense Ratio?

The following steps outline how to calculate the Impact of Expense Ratio.

  1. First, determine the gross investment return (GI) ($).
  2. Next, determine the expense ratio (ER) (decimal).
  3. Next, use the formula NR = (GI - (GI * ER)) to calculate the net return of the investment (NR).
  4. Finally, calculate the Impact of Expense Ratio.
  5. After inserting the variables and calculating the result, check your answer with the calculator above.

Example Problem:

Use the following variables as an example problem to test your knowledge.

gross investment return (GI) ($) = 5000

expense ratio (ER) (decimal) = 0.05