When/how does this get deducted?
Most mutual funds will keep a percentage of the fund in cash equivalents that each day a portion is taken to cover the expenses of the fund. Thus, the expenses are being paid all the time from this portion. In the case of money market mutual funds, there is usually a drag on the yield that results from the expense ratio,i.e. the fund invests in commercial paper that pays 1.2% and the fund's expense ratio is .7% then you'll get .5% as the first offset is the expenses on the fund.
Are a Fund's Expenses Deducted Daily From Assets? notes in part:
Simply put, a fund's expense ratio is its daily operating costs,
expressed as an annual percentage of its average net assets. While
operating costs occur and are deducted daily, it's important to
realize that the expense ratio represents a whole year's worth of
these costs, not the amount deducted from the fund each day. In your
case, the Oakmark Small Cap fund would deduct about $14.50 a year on a
Whatever your fund's costs, the fees are deducted from your investment
each day and have a direct impact on the fund's return.
I'm curious how it works, and do they make sure there is no particular
time of year when it is disadvantageous or advantageous to buy?
Disadvantageous would be to buy right before a distribution. Don't Buy a Tax Bill with a Mutual Fund would be an article from Kiplinger's about how if you time your purchase incorrectly, you may end up paying taxes without seeing any gains right away.
Yes, the expense ratio is already priced into the Net Asset Value of the fund.