What does expense ratio mean with regard to mutual funds?

At a basic level, the expense ratio is simply the cost the fund manager charges from the investor for day-to-day running of the fund. The total expense includes charges for different activities involved in this process such as investment management, sales and distribution, and fund operations. What investors need to know is that active funds will have a higher expense ratio as compared to passive funds due to the value addition of the fund management process.

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