When you’re investing in managed funds or exchange-traded funds (ETFs) in Australia, the expense ratio might seem like a minor detail. But in 2025, with increased transparency rules and mounting fee competition, understanding the expense ratio is more important than ever for maximising your investment returns.
What Is the Expense Ratio and Why Does It Matter?
The expense ratio is the annual fee that fund managers charge investors to manage a fund. It’s expressed as a percentage of your investment and automatically deducted from the fund’s assets, so you won’t see a separate bill. But make no mistake: even small differences in expense ratios can have a big impact on your long-term returns.
- Example: If you invest $10,000 in an ETF with a 0.2% expense ratio, you’ll pay $20 a year in fees. If another fund charges 1.0%, that’s $100 a year—five times more.
- In 2025, ASIC’s updated disclosure requirements mean all retail funds must clearly state the total expense ratio (TER) on their product pages and annual statements.
The Components of the Expense Ratio in 2025
The expense ratio typically includes:
- Management Fees: The core cost of running the fund.
- Administration Fees: Covering legal, accounting, and reporting expenses.
- Indirect Costs: Like custody, audit, and regulatory compliance.
Performance fees are sometimes not included in the published expense ratio, so it’s essential to check the fund’s Product Disclosure Statement (PDS) or the new 2025 Key Fund Facts sheet.
How Expense Ratios Affect Your Returns
It’s easy to overlook the impact of fees, but over decades, they add up. Here’s how:
- Lower expense ratios mean more of your money is invested and compounding over time.
- Higher-fee funds must outperform low-fee rivals just to deliver the same net return.
For instance, compare two Australian index funds in 2025:
- Fund A: 0.12% expense ratio, 7.5% annual return before fees.
- Fund B: 0.85% expense ratio, 7.5% annual return before fees.
Over 20 years, on a $20,000 investment, Fund A would leave you with nearly $6,000 more than Fund B—simply due to the difference in expense ratios.
Expense Ratio Trends and Policy Updates for 2025
Several developments are shaping the landscape this year:
- ASIC Fee Transparency: From March 2025, all retail fund managers must publish the Total Expense Ratio (TER) using a standardised format, making it easier for investors to compare apples with apples.
- Fee Compression: Increased competition among ETF providers has driven average expense ratios lower, especially for Australian and global equity funds.
- Green and ESG Funds: Ethical and ESG-themed funds continue to carry higher expense ratios, though 2025 has seen a slight decline as more entrants join the sector.
Smart investors are using comparison tools and updated PDS disclosures to avoid overpaying for underperformance.
Tips for Managing Expense Ratios in Your Portfolio
- Always compare the expense ratio of similar funds before investing.
- Don’t assume higher fees mean better performance—historically, low-cost funds often outperform over the long run.
- Review your fund’s 2025 Key Fund Facts sheet for any new or hidden costs.
- If you’re invested in older funds, check if newer, lower-fee options are available.
Conclusion
Expense ratios may seem like small numbers, but they have an outsized effect on your wealth over time. With new regulations and fee cuts in 2025, it’s the perfect time for Australians to revisit their fund choices and ensure they’re not paying more than they need to. The difference could mean thousands extra in your pocket come retirement.
