how the gross expense ratio ger works
the gross expense ratio is important because it informs the investors about the total amount of fees charged for managing the fund these fees matter because they affect the net return produced by the fund and received by the investors if these fees are high the fund s net return after fees is negatively affected in a material way the discussion around mutual funds ger has grown with the rise of exchange traded funds etfs which are more competitive in this regard the gross expense ratio includes all fees incurred by the fund including management fees 12b 1 fees administrative costs and operating expenses investors should compare the gross expense ratio to a fund s net expense ratio and understand the differences involved in some cases a fund may have agreements in place for waiving reimbursing or recouping some of the fund s fees this is often the case for new funds an investment company and its fund managers may agree to waive certain fees following the launch of a new fund to keep the expense ratio lower for investors the net expense ratio represents the fees charged to the fund after any waivers reimbursements and recoupments have been made these fee reductions are typically for a specified time frame after which the fund may incur all full costs for example if a fund has a net expense ratio of 2 and a gross expense ratio of 3 it is readily apparent that 1 of the fund s assets were used to waive fees reimburse expenses or provide other rebates not included in the net expense ratio this is important because such rebates and reimbursements may or may not continue in the future prudent investors will want to examine both expense ratios and compare them to like funds before investing examples of gross expense ratiosin general passively managed funds such as index funds will typically have lower expense ratios than actively managed funds gross expense ratios usually range from 0 to 3 below are two examples the ab large cap growth fund is an actively managed fund with a gross expense ratio of 0 65 and a net expense ratio of 0 64 for the class a shares as of september 2020 the fund currently has a fee waiver and expense reimbursement of 0 01 management fees for the fund are 0 51 1 the fund invests primarily in large cap u s stocks with high growth potential it typically includes 50 to 70 holdings the t rowe price equity index 500 fund is a passive fund it seeks to replicate the s p 500 index as of september 2020 it has some contractual fee waivers in place its gross expense ratio is 0 19 and its net expense ratio is also 0 19 