What counts as a reasonable expense ratio

Knowing that fees matter is the easy part. The hard part is knowing whether the number in front of you is normal, high, or absurd, and that is the part most coverage skips. These are the published averages.

The simple version

The Investment Company Institute publishes an annual study of what funds actually charge. For 2025, the averages shareholders actually paid were 0.14% for index equity ETFs, 0.40% for equity mutual funds, and 0.36% for bond mutual funds.

Those are the numbers to measure anything against. A broad index fund charging near 0.05% is at the cheap end of normal. An equity fund charging 1% is well above the average investor's experience, and worth a reason.

The actual averages, by fund type

All figures are for 2025 and are asset-weighted, meaning they describe what the average invested dollar actually paid rather than what the average fund charged. The distinction turns out to matter enormously, which is the next section.

Why two people can quote different averages and both be right

There are two ways to average expense ratios, and they produce startlingly different answers. The simple average treats every fund equally, so a tiny fund nobody owns counts as much as a giant one. The asset-weighted average weights each fund by the money actually in it, so it describes what investors really pay.

For index equity mutual funds in 2025, the simple average was 0.57% and the asset-weighted average was 0.05%. Same funds, same year, a gap of more than eleven times. For index equity ETFs the split was 0.45% simple against 0.14% asset-weighted.

That gap is not a statistical quirk, it is the finding. Expensive funds exist in large numbers and hold very little money. At the end of 2025, 78% of index equity fund assets sat in the cheapest quarter of funds by expense ratio, and 69% of actively managed equity fund assets did too.

What the trend line says

Fees have fallen a long way. Between 1996 and 2025 the average expense ratio for equity mutual funds dropped 62% and for bond mutual funds 57%.

The study attributes most of that decline not to fund companies cutting prices out of generosity but to investors moving money toward cheaper options. In 2025, 92% of gross sales of long-term mutual funds went to no-load funds without 12b-1 fees, against 46% in 2000.

One category moved the other way. Money market fund expense ratios rose a basis point to 0.24% in 2025, because higher short-term interest rates let fund companies pare back the fee waivers they had used when yields were near zero.

The Real Cost lens on picking from the menu

The other expense-ratio lesson covers what a fee costs compounded over a working life. This one asks a narrower question: what does it cost to hold a typical fund rather than a typical dollar's fund, for one year?

• On a stated $100,000 balance, the asset-weighted index equity ETF average of 0.14% is $140 a year
• The simple average for the same category, 0.45%, is $450 a year on the same balance
• The difference is $310 a year, for funds tracking broadly similar things, decided entirely by which fund you happened to pick off the menu
• Nothing about that gap is hidden. Every one of those expense ratios is published in the fund's prospectus before you buy

What this lesson is NOT

This is not a recommendation to buy or avoid any fund, fund type, or fund company, and it is not advice about your portfolio. A low expense ratio is one attribute of a fund and not a verdict on it: some higher-cost funds do things cheap funds do not, and whether that is worth paying for depends on circumstances this lesson cannot see. Averages are not targets, and a fee above average is a question to ask rather than a mistake by itself. These are published industry averages for 2025 and they change each year. This is not investment advice.