Expense Ratio refers to the amount charged by an investment house to manage the investor’s portfolio. It is also known as Management Expense Ratio (MER).

The amount collected as expense ratio is used for various operations expenses such as legal fees, administration and management costs, advertising related expenses etc. Expense Ratio is calculated by dividing the total expenses of the fund by the Assets under Management(AUM). The Expense Ratio is expressed as a percentage.

For example, if you have invested Rs 1 lakh in Mutual Funds and the expense ratio is 1%, then you need to pay Rs 1,000 to the investment house.