Gross Expense Ratio - GER

You're putting money into a mutual fund. Basically, you're giving your cash over to someone else (the manager) to pick investments for you. They don't do that for free. As such, the fund comes with expenses...salaries for the managers, money for secretaries, and computers and trips to conferences in the Caymans.

The expense ratio of a fund tracks these costs, given as a fraction of the fund's total assets. It helps you understand how much you're being charged for your investments.

To calculate the GER, take the total expenses of the fund and divide it by the assets it has under management. So a fund that manages $120 million has costs of $2.4 million a year; its expense ratio is 1%.

The term "gross" comes into play because the GER might not include all expenses related to the fund. (Yeah, despite the name "expense ratio," there might be additional costs involved.)

The gross expenses include the main expenses of running a fund. They consist of things like management fees (the checks that go to the people in suits spending 16 hours a day looking at computer screens), administrative fees (the glass-walled office in downtown Manhattan) and marketing fees (the banner ads you saw on goldbugforever.com).

However, there are other waivers and reimbursements that don't get tallied in this general expense figure. Once these expenses come out, a second figure (net expense ratio) takes them into account. The gross expense ratio and the net expense ratio are often the same (because the fund doesn't have any of those other expenses). But the net figure represents the amount you're actually paying for the fund, so that's the more pertinent number.

See: Carry. See: 12b1. See: Index Funds. See: Mutual Funds.