Mutual fund returns include the fund's gross performance minus the expense ratio. Over multi-decade horizons the expense ratio compounds against you, often costing 25%+ of the final balance.
Quick answer. Mutual fund returns include the fund's gross performance minus the expense ratio. Over multi-decade horizons the expense ratio compounds against you, often costing 25%+ of the final balance.
Interactive calculator
Mutual fund returns
Lump sum plus optional monthly SIP, after expense-ratio drag.
Net future value-
Total contributed-
Total gains-
Cost of expense ratio-
FV if expense ratio were zero-
How is this calculated?
Net annual return = gross return - expense ratio. Lump sum FV = P × (1 + net)^n. SIP FV computed with monthly compounding at net/12. The "cost of expense ratio" is the gap between zero-ER and quoted-ER projections. Source: SEC mutual fund cost calculator methodology.
About this tool
The mutual fund returns calculator models the future value of a lump sum plus optional monthly contributions invested in a mutual fund, after subtracting the fund's expense ratio from the gross return. It is the only way to compare two funds honestly: the headline gross return on the prospectus is what the strategy generates before the manager takes their cut; the net return is what actually reaches your account.
The expense ratio acts as a permanent negative compound. A 0.85 percent active fund expense ratio versus a 0.05 percent index fund expense ratio over 30 years at the same gross return costs roughly 25 percent of the final balance. This drag exists every year regardless of whether the fund outperforms its benchmark, which is why SPIVA scorecards consistently show 80 to 90 percent of active funds underperform their index over 15 years.
gross_return = the strategy's annual return before fees, as advertised by the fund manager.
expense_ratio = annual fee charged by the fund, accrued daily.
tax_drag = annualized cost of dividend and short term capital gains distributions in a taxable account (0 inside an IRA, 401(k), Roth, TFSA, ISA).
n = years invested.
Worked example
Invest 10,000 USD upfront plus 500 USD per month for 20 years. Gross expected return is 10 percent annually. Compare the same strategy in two funds: an active fund with a 0.85 percent expense ratio and an index fund at 0.05 percent:
Net return active fund: 10.00 - 0.85 = 9.15 percent.
Net return index fund: 10.00 - 0.05 = 9.95 percent.
Active fund FV: 10,000 + 500/month at 9.15 percent monthly compounded over 240 months = 393,070 USD.
Index fund FV: same inputs at 9.95 percent = 442,580 USD.
Cost of the extra 0.80 percent expense ratio: 49,510 USD lost to fees over 20 years.
Total contributed: 10,000 + 500 x 240 = 130,000 USD; total return is 3x to 3.4x depending on fund choice.
Result: Switching from an 0.85 percent active fund to an 0.05 percent index fund preserves about 49,510 USD over 20 years, or 12.6 percent of the active fund's final balance. The active manager would need to beat the index by 0.80 percent per year net, every year, to break even. SPIVA data shows this rarely happens.
Expense ratio impact on 100,000 USD over 30 years at 7 percent gross
Fund type
Expense ratio
Net return
Final balance
Lost to fees
Fidelity zero fee index
0.00 percent
7.00 percent
761,226 USD
0 USD
Vanguard ETF (VTI)
0.03 percent
6.97 percent
755,162 USD
6,064 USD
Typical S and P 500 index
0.10 percent
6.90 percent
741,002 USD
20,224 USD
Cheap active fund
0.50 percent
6.50 percent
660,628 USD
100,598 USD
Typical active equity fund
0.85 percent
6.15 percent
595,762 USD
165,464 USD
Older A share active fund
1.25 percent
5.75 percent
530,481 USD
230,745 USD
Expensive sector fund
1.75 percent
5.25 percent
458,679 USD
302,547 USD
Common mistakes
Comparing gross returns side by side. Two funds with the same gross return can deliver wildly different net returns. Always subtract the expense ratio first.
Buying A shares with a front load. A 5.75 percent front load on a 10,000 USD investment immediately drops your basis to 9,425 USD. That is a permanent loss compounding against you for 30 years.
Holding high turnover funds in a taxable account. Annual capital gains distributions force tax events even when you do not sell. Index ETFs distribute almost nothing because of the in kind redemption mechanism.
Chasing last year's top performing fund. Past performance is uncorrelated with future relative returns. Manager skill cannot be reliably identified ex ante; fees can.
Forgetting the wrap fee on top of the expense ratio. Advisor managed accounts often charge a 1 percent wrap on top of a 0.85 percent fund expense ratio, taking 1.85 percent per year. That compounds to roughly 45 percent of the final balance over 30 years.
Ignoring tax drag. A 1.2 percent annual dividend yield taxed at 20 percent is a 0.24 percent annual drag in a taxable account, on top of the expense ratio. The Roth, TFSA, and ISA eliminate it.
The expense ratio is the annual percentage of fund assets deducted to cover management fees, administration, and other operating costs. It is listed in the prospectus, accrued daily as 1/365 of the annual rate, and netted against the fund's net asset value (NAV) before that NAV is reported to investors. There is no separate line item; the cost is silent.
How much does expense ratio matter?+
Enormously over long horizons. A 1 percentage point expense ratio difference (for example 0.05 percent index vs 1.05 percent active) compounds to roughly 25 percent lower ending balance over 30 years at a 7 percent gross return. It is the single biggest controllable variable in long term investing because it is certain to apply every year regardless of fund performance.
What is a good expense ratio for index funds in 2026?+
Under 0.10 percent for major US broad market index funds (Vanguard VTI at 0.03 percent, Schwab SWTSX at 0.03 percent, Fidelity FXAIX at 0.015 percent, iShares ITOT at 0.03 percent). International index funds typically charge 0.05 to 0.15 percent; bond index funds 0.03 to 0.10 percent. Above 0.50 percent you are paying for active management and should verify the manager has actually outperformed net of fees (most have not).
What other costs do mutual funds carry?+
Beyond the expense ratio: front load (typically 0 to 5.75 percent of every purchase on A shares), back load or contingent deferred sales charge on B and C shares, 12b-1 marketing fees of 0.25 to 1 percent baked into the expense ratio, redemption fees on short term sales, and tax drag from forced capital gains distributions in non sheltered accounts. ETFs avoid most of these.
Sources
SPIVA US Year End Scorecard 2024, S and P Dow Jones Indices, on active vs index fund persistence.
SEC Mutual Fund Cost Calculator methodology and Form N-1A disclosure rules.
Morningstar Annual Fund Fee Study 2025, asset weighted expense ratios across categories.
Investment Company Institute, Trends in the Expenses and Fees of Funds, 2024.
