A good expense ratio for an index fund or passive ETF is anything under 0.20%, and many of the most popular options charge 0.10% or less. For actively managed funds, anything below 0.50% is competitive. These percentages may look tiny, but they compound against you every year you hold the fund, so even small differences matter over a long investing timeline.
What an Expense Ratio Actually Costs You
An expense ratio is the annual fee a fund charges as a percentage of your invested balance. A fund with a 0.10% expense ratio takes $1 for every $1,000 you have invested, every year. You never see a line-item charge on your statement because the fee is deducted directly from the fund’s returns before they reach you. If the fund’s investments earn 8% in a given year and the expense ratio is 0.50%, your net return is closer to 7.5%.
The real damage shows up over decades. If you invest $1,000 a month over a 40-year career and earn average market returns, your portfolio could grow to roughly $5.8 million. Add a 1% annual fee, and that same portfolio drops to about $4.3 million. That single percentage point quietly consumed around $1.5 million, or 25% of your total wealth, according to a Forbes analysis. The lesson: you don’t need to shave fees to zero, but every tenth of a percent you save keeps more money compounding in your account.
Benchmarks by Fund Type
What counts as “good” depends on the kind of fund you’re buying. Here’s how the averages break down based on Morningstar data from the end of 2025:
- Passive (index) mutual funds: 0.058% average expense ratio
- Passive ETFs: 0.135% average
- Actively managed mutual funds: 0.57% average
- Active ETFs: 0.42% average
If your index fund charges more than 0.20%, you’re likely paying above what the market offers for the same type of exposure. For actively managed funds, anything in the 0.50% to 0.75% range is reasonable, though you should ask whether the active management is actually delivering returns that justify the premium over a comparable index fund.
Target Date Funds
Target date funds, the “set it and forget it” option in many 401(k) plans, have gotten significantly cheaper. The asset-weighted average expense ratio for target date mutual funds fell to 0.27% recently, roughly half what it was a decade ago. If your employer’s plan offers a target date fund at 0.30% or below, that’s competitive. If it’s above 0.50%, it may be worth checking whether your plan offers a lower-cost alternative or whether you can build a similar allocation yourself using the plan’s index fund options.
International and Emerging Market Funds
Funds that invest outside the U.S. tend to charge slightly more because foreign markets involve higher trading costs and additional complexity. Emerging market ETFs range from 0.09% to 0.55% depending on the provider and strategy. A good emerging market index fund sits at the lower end of that range, typically under 0.25%. For broad international developed-market funds, aim for similar territory.
Hidden Fees Inside the Expense Ratio
The expense ratio isn’t one flat fee. It bundles together the fund’s management costs, administrative expenses, and sometimes a 12b-1 fee. That last one is worth understanding: a 12b-1 fee is a marketing and distribution charge that can add up to 1% annually to a fund’s costs. It pays for advertising and, more significantly, commissions to brokers who sell the fund. The marketing portion alone can be as high as 0.75%, with an additional 0.25% service fee on top.
You’ll see 12b-1 fees most often in mutual fund share classes sold through brokers. Class C shares frequently carry the maximum 1% 12b-1 fee, while Class A shares typically charge a one-time upfront sales load instead. If you’re buying funds through a brokerage account on your own, look for share classes with no 12b-1 fee and no sales load. Most index funds and ETFs from major providers don’t carry either.
Costs Beyond the Expense Ratio
The expense ratio is the biggest recurring cost, but it’s not the only one. Some mutual funds charge a front-end load (a commission taken from your initial investment, often 3% to 5%) or a back-end load (a fee when you sell). These are separate from the expense ratio and can take a significant bite out of your returns, especially on smaller investments. A 5% front-end load on a $10,000 investment means only $9,500 actually gets invested.
No-load funds, which are the standard for most index funds and ETFs, skip these charges entirely. If you’re comparing two funds with similar expense ratios but one charges a sales load, the no-load option is almost always the better deal.
How to Check and Compare
Every fund’s expense ratio is listed in its prospectus and on any brokerage platform where you can buy it. When comparing funds, make sure you’re looking at the net expense ratio (after any fee waivers the fund company has applied) rather than the gross ratio. Some newer funds temporarily waive a portion of their fees to attract investors, and that waiver can expire.
A quick rule of thumb: for U.S. stock index funds, look for expense ratios at or below 0.10%. For bond index funds, under 0.10% is also achievable from the largest providers. For international index funds, under 0.20% is solid. For actively managed funds in any category, under 0.50% puts you in competitive territory. If you’re in a 401(k) and the available options are more expensive, compare what’s offered and pick the lowest-cost fund that matches your target allocation. Even small differences add up when compounding works against you year after year.