The ongoing charges figure is a single annual percentage that shows what it costs to own a fund year after year, covering management, administration, custody, audit, and regulatory expenses. It is deducted daily from the fund’s assets, so you never see it as a line on your statement. For a broad-market index fund the figure can sit below 0.10%; for an actively managed equity fund it often runs 0.50% to 0.80% or higher. Regulators standardized the number so investors could compare funds without reading the full prospectus, but it is not the total cost of ownership. Trading commissions, performance fees, and sales loads sit outside it.
What the Figure Includes
Every recurring expense the fund pays out of its own assets to keep operating falls inside the ongoing charges figure. The largest piece is usually the management fee, which pays the portfolio managers and analysts. Custody fees cover the bank that holds the fund’s securities and settles trades. Audit and regulatory costs keep the fund compliant with accounting rules and oversight requirements.
Administrative costs are also captured: record-keeping, shareholder communications, tax forms, and the processing of buy and sell orders across many accounts. For U.S.-registered funds, Rule 12b-1 distribution and service fees are included as well. The SEC caps the asset-based sales charge portion of those fees at 0.75% per year, with an additional 0.25% permitted for marketing and service.
All of these costs are netted against the fund’s daily net asset value rather than billed separately, so the share price you see already reflects them, and reported performance is after the deduction.
What the Figure Leaves Out
Several costs are deliberately excluded, either because they vary too much to express as a stable annual rate or because they are one-time events. Treating the ongoing charges figure as a complete cost picture is the most common mistake investors make with it.
- Transaction costs. Brokerage commissions, bid-ask spreads, and market impact when the fund trades. A high-turnover fund will spend far more here than a buy-and-hold index fund, and none of it appears in the figure. Form N-1A requires funds to disclose portfolio turnover separately because these costs “are not reflected in annual fund operating expenses.”1U.S. Securities and Exchange Commission. Form N-1A – Registration Statement for Open-End Management Investment Companies
- Performance fees. Some funds take a percentage of profits above a hurdle rate, often 20% of gains over a benchmark. Because these fees depend on returns, they sit outside the ongoing charges calculation.
- Entry and exit charges. Front-end or back-end loads can run to 5% or more of the amount invested. They compensate the broker or advisor who sold the fund and are disclosed separately in the prospectus fee table.
- Soft-dollar research. Fund managers sometimes pay higher brokerage commissions in exchange for research and data. Section 28(e) of the Securities Exchange Act provides a safe harbor for the practice when the manager finds the commission reasonable relative to the research received. Because the cost is embedded in trading commissions, it bypasses the figure entirely.2U.S. Securities and Exchange Commission. Interpretive Release Concerning the Scope of Section 28(e) of the Securities Exchange Act of 1934
Two funds with the same ongoing charges figure can impose very different total costs once trading activity, performance incentives, and sales charges enter the picture.
How It Is Calculated
The math is simple. Take the fund’s qualifying operating expenses over the most recent financial year and divide by the average net asset value for the same period. Express the result as a percentage.3Association of Investment Companies. Ongoing Charges: A Summary of the AIC Ongoing Charges Calculation
If a fund spent $100,000 on operating costs during the year and its average NAV was $10 million, the figure is 1.00%. It is backward-looking, based on audited expenses, not a projection. New funds without a full year of history use an estimate that gets replaced with real figures once accounts are audited.
Gross Versus Net
Many funds waive part of their fees temporarily to stay competitive or attract early investors. That produces two numbers: a gross figure showing the full cost before waivers, and a net figure showing what you actually paid.4Investor.gov. Mutual Fund and ETF Fees and Expenses – Investor Bulletin
A gross ratio of 1.20% with a 0.30% waiver becomes a net ratio of 0.90%. Waivers often expire, and the fund may recoup waived amounts later. When comparing funds, check whether you are looking at the gross or net figure and how long the waiver is expected to last. The SEC requires any fee waiver lasting at least a year to be disclosed in the prospectus fee table, with the net amount shown.1U.S. Securities and Exchange Commission. Form N-1A – Registration Statement for Open-End Management Investment Companies
Funds That Hold Other Funds
When a fund holds shares of other funds, the costs inside those underlying holdings have to be layered in. European rules require a synthetic ongoing charges figure that accounts for underlying fund costs. In the U.S., the Form N-1A fee table adds a line called “Acquired Fund Fees and Expenses” directly above the total.1U.S. Securities and Exchange Commission. Form N-1A – Registration Statement for Open-End Management Investment Companies Skipping that line is an easy way to underestimate what a fund-of-funds structure actually costs.
Why Small Percentages Matter
A fraction of a percent sounds trivial in any single year. Over a long holding period it is not. Ongoing charges compound against you the same way returns compound for you, and the damage grows as the balance grows.
Take $100,000 invested at a 7% gross annual return. At a 0.10% expense ratio, that investment grows to roughly $740,000 over 30 years. At 1.00%, the same investment reaches about $574,000. The gap is around $166,000. After 10 years the difference is closer to $16,000, which doesn’t feel alarming, but compounding turns the early gap into a six-figure shortfall by year 30 because the higher fee erodes a progressively larger base each year.
Two equity funds with similar mandates and similar historical returns will deliver meaningfully different outcomes if one charges 0.80% and the other 0.20%. The lower-cost fund does not need to outperform. It just needs to not fall behind by more than the fee difference.
Typical Ranges by Fund Type
Costs vary widely by fund type. Asset-weighted averages for 2025 show the spread:
- Index equity mutual funds: 0.05% on average
- Index equity ETFs: 0.14% on average
- Actively managed equity ETFs: 0.33% on average
- Actively managed equity mutual funds: 0.64% on average
These are asset-weighted figures, so they reflect what the typical invested dollar actually pays, not a simple average across all funds. A small, niche fund charging 1.50% barely registers in that calculation because few dollars sit there. The long-term trend has been downward, driven by the migration toward index products and fee competition among fund families. If you are paying above 1.00% for a broad equity fund, the number is worth a hard look.
Ongoing Charges Figure Versus U.S. Expense Ratio
The ongoing charges figure originated in European fund regulation and is disclosed in the Key Information Document that UCITS funds provide. The U.S. equivalent is the expense ratio shown in the prospectus fee table under SEC Form N-1A, labeled “Total Annual Fund Operating Expenses.”1U.S. Securities and Exchange Commission. Form N-1A – Registration Statement for Open-End Management Investment Companies
Both capture essentially the same basket of costs: management, administration, custody, audit, and regulatory compliance. The U.S. table breaks the components out as individual line items — management fees, 12b-1 fees, “Other Expenses” — before summing them.4Investor.gov. Mutual Fund and ETF Fees and Expenses – Investor Bulletin Neither metric includes transaction costs, performance fees, or sales loads. If you own funds on both sides of the Atlantic, you can compare the two numbers on roughly equal footing, though small calculation differences mean they will not match to the hundredth of a percent.
Where to Find the Number
European Funds
Since January 2023, UCITS funds provide a PRIIPs Key Information Document instead of the older KIID. It runs two or three pages and lays out the fund’s objectives, risk profile, and charges in plain language.5European Securities and Markets Authority. Consolidated Q&As on the PRIIPs Key Information Document The charges section shows ongoing costs as a single percentage along with any entry charges, exit charges, and performance fees. The document must be made available before you invest and is almost always on the fund’s website.
U.S. Funds
For U.S. mutual funds and ETFs, start with the prospectus fee table. Form N-1A requires a standardized two-part layout: shareholder fees at the top (loads, redemption fees, account fees), then annual operating expenses by category. The total expense line, with any waiver adjustments noted, sits at the bottom.1U.S. Securities and Exchange Commission. Form N-1A – Registration Statement for Open-End Management Investment Companies It usually appears within the first few pages, in the risk and fee summary.
Funds also issue streamlined annual and semi-annual shareholder reports. These tailored reports include a simplified expense table that shows costs two ways: as a percentage of your investment, and as a dollar figure based on a hypothetical $10,000 investment during the period.6Federal Register. Tailored Shareholder Reports for Mutual Funds and Exchange-Traded Funds; Fee Information in Investment Company Advertisements A 0.50% expense ratio on $10,000 translates to roughly $25 over six months, which lands differently than “half a percent.”
How Fund Expenses Affect Your Taxes
Ongoing charges are deducted inside the fund before any income reaches you, so they automatically reduce the taxable distributions you receive. A fund earning 5% in dividends that deducts 1% in expenses reports roughly 4% in net investment income on your Form 1099-DIV. The 1% never appears as a separate tax event; it just lowers the payout.7Internal Revenue Service. Instructions for Forms 1099-DIV
You cannot deduct fund management fees on your individual federal return. Before 2018, investment advisory and certain investment expenses qualified as miscellaneous itemized deductions subject to a 2% floor. The Tax Cuts and Jobs Act suspended those deductions through 2025, and legislation enacted in 2025 made the elimination permanent. The fund’s internal deduction reduces your taxable income indirectly; no additional write-off is available to you as an individual.