The percentage of assets deducted each year for underlying fund operating expenses, management fees, and all other asset-based costs incurred by the fund, excluding brokerage fees. Like insurance expenses, fund expenses are reflected in the subaccount's AUV.
Benefits
The expense ratio is useful because it shows the actual amount that the underlying fund takes out of its assets each year to cover its expenses. Investors should note not only the current expense-ratio figure, but also the trend in these expenses; it could prove useful to know whether a fund is becoming cheaper or more costly. When considering high expenses vs. low expenses, potential investors must also consider the fund's objective and its size.
Origin
Morningstar does not calculate fund expense ratios. The figure is culled directly from the financial section of the most recent annual shareholder report.