# Understanding the Gross Expense Ratio (GER): Key Details and Examples

![Gross Expense Ratio (GER)](https://www.investopedia.com/thmb/ExrNpCINjD21z5Ro70WKmCj5GUo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/gross-expense-ratio.asp_final-0e312f58767e4c2b864004e72620c88b.png)

*— Investopedia / Ellen Lindner*

> **Definition**
>
> The gross expense ratio (GER) is the percentage of a mutual fund's assets allocated to operating expenses.

## What Is the Gross Expense Ratio (GER)?

The gross expense ratio (GER) is the percentage of a [mutual fund's](https://www.investopedia.com/terms/m/mutualfund.asp) assets used to cover the costs of running the fund. The GER includes things like fee waivers and expense reimbursements, but doesn't include sales or brokerage commissions. Investors should take note of the GER because it affects a fund’s net returns. Actively managed funds typically come with higher GERs compared to passively managed ones, which allows you to compare costs when choosing investments.

### Key Takeaways

*   The gross expense ratio (GER) includes fee waivers and reimbursements but excludes sales commissions.  
    
*   GER reflects the total cost of running a fund, impacting investors' net returns.  
    
*   Comparing GER to the net expense ratio helps investors understand fee structures.  
    
*   Actively managed funds generally have higher expense ratios than passive ones.  
    
*   GER typically ranges from 0% to 3%, depending on the fund type and management style.

## Understanding the Mechanics of the Gross Expense Ratio (GER)

The gross expense ratio is important because it informs the investors about the [total amount of fees charged for managing the fund](https://www.investopedia.com/articles/investing/091515/comparing-etf-gross-vs-net-expense-ratios.asp). These fees matter because they affect the net return produced by the fund and received by the investors. If these fees are high, the fund's net return after fees is negatively affected in a material way.

The rise of exchange-traded funds (ETFs), which are often more competitive, has fueled discussion on mutual funds’ GER. The gross expense ratio includes all fees incurred by the fund including management fees, [12B-1 fees](https://www.investopedia.com/terms/1/12b-1fees.asp), administrative costs, and operating expenses. [Investors](https://www.investopedia.com/terms/i/investor.asp) should compare the gross expense ratio to a fund’s net expense ratio and understand the differences involved.

In some cases, a fund may have agreements in place for waiving, reimbursing, or recouping some of the fund’s fees. This is often the case for new funds. An [investment company](https://www.investopedia.com/terms/i/investmentcompany.asp) and its fund managers may agree to waive certain fees following the launch of a new fund to keep the expense ratio lower for investors. The net expense ratio includes fees after applying waivers, reimbursements, and recoupments, often for a limited time before full costs apply.

For example, if a [fund](https://www.investopedia.com/terms/f/fund.asp) has a net expense ratio of 2% and a gross expense ratio of 3%, it is readily apparent that 1% of the fund's assets were used to waive fees, reimburse expenses or provide other [rebates](https://www.investopedia.com/terms/r/rebate.asp) not included in the net expense ratio. This is important because such rebates and reimbursements may or may not continue in the future. Prudent investors will want to examine both expense ratios and compare them to like funds before [investing](https://www.investopedia.com/terms/i/investing.asp).

## Real-World Examples of Gross Expense Ratios 

Index funds, which are passively managed, usually have lower expense ratios than active funds. Gross expense ratios often range from 0% to 3%. Below are two examples.

### Detailed Overview: AB Large Cap Growth Fund 

The [AB Large Cap Growth Fund](https://www.alliancebernstein.com/abcom/Product_Center/3_Vehicle/MF/Equity/Growth/Large_Cap_Growth.htm?shareclass=Advisor) is an actively managed fund with a gross expense ratio of 0.65% and a net expense ratio of 0.64% for the Class A shares, as of September 2020. The fund currently has a fee waiver and expense reimbursement of 0.01%. [Management fees](https://www.investopedia.com/terms/m/managementfee.asp) for the fund are 0.51%.﻿﻿ The fund invests primarily in large-cap U.S. stocks with high growth potential. It typically includes 50 to 70 holdings.

### In-Depth Look: T. Rowe Price Equity Index 500 Fund 

The [T. Rowe Price Equity Index 500 Fund](https://www3.troweprice.com/fb2/fbkweb/expenses.do?ticker=PREIX) is a passive fund. It seeks to replicate the S&P 500 Index. As of September 2020, it has some contractual fee waivers in place. Its gross expense ratio is 0.19%, and its net expense ratio is also 0.19%.

## The Bottom Line

The GER shows the total percentage of a fund’s assets used to cover its operating costs. This metric is important because higher expenses reduce the net returns investors receive. GER includes fee waivers and expense reimbursements, while the net expense ratio does not. Investors should compare both ratios across similar funds to make informed choices. GER usually ranges from 0% to 3%, with passive funds generally having lower costs than actively managed funds.  

> **Article Sources**
>
> 1.  AB Large Cap Growth Fund. "[Summary Prospectus](http://hosted.rightprospectus.com/AllianceBernstein/Fund.aspx?cu=01877C101&dt=SP&SS=ABI)," Page 2. Accessed Sept. 7, 2020.