Let's say I were to invest 10,000$ in a mutual fund and it has an annual fee of 2%. If the fund gains over the year, then my actual gains would be after subtracting the 2% in fees. But if the fund has a loss over the year, the 2% would still be charged. My question is wouldn't this then dilute my holdings because the fund would sell some of my shares to get the 2% fee? So in the future I would have less shares in the mutual fund.

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    Is this really a fee being charged directly to you, or an expense ratio? Expenses are charged internally within the fund, they just reduce the return you see, they don't reduce your holdings.
    – Barmar
    Commented Aug 15, 2023 at 13:44
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    Funds keep enough money in cash to pay their expenses, so they don't usually need to sell securities to cover it.
    – Barmar
    Commented Aug 15, 2023 at 13:45
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    Nitpicking: often mutual funds works with daily NAV calculation. The function is that if you get one share of the fund, the monetary value of that share is calculated. When the fund charges the fee it sells the underlaying assets. You will still have 1 share of the fund, but it will be worth less. NAV is short for net asset value, that is the monetary value of one share in the fund.
    – ghellquist
    Commented Aug 15, 2023 at 20:27

1 Answer 1


Yes, mutual fund fees subtract directly from your growth rate. Fees should be one of the first things you look at when comparing funds.

Note that one of the reasons index funds did surprisingly well is that their fees tend to be well under 1%. Most of mine are around 0.2%.

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    Heck, at this point, the more broad-based index funds are rarely even 0.2% (e.g. the Vanguard, Fidelity, and Charles Schwab S&P 500 index funds run 0.015-0.04%); 0.2% is for more targeted sector funds and the like. Commented Aug 15, 2023 at 10:55
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    True. I was going by memory, which may have misplaced a decimal. Just makes the point stronger, though: fees matter. A lot.
    – keshlam
    Commented Aug 15, 2023 at 14:10

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