Expense ratios are important to consider when choosing a fund, as they can significantly affect returns.
12b-1 fees are generally limited to a maximum of 1.00% per year (.75% distribution and .25% shareholder servicing) under Financial Industry Regulatory Authority Rules.
It is very hard for a fund to significantly lower its expense ratio once it has had a few years of operational history.
Thus, if an investor buys a fund with a high expense ratio that has some history, he/she should not expect any significant reduction.
There are three broad investment categories for mutual funds (equity, bond, and money market – in declining order of historical returns).
[4] Leading sources of information about charities, including GuideStar, Charity Navigator and the Wise Giving Alliance, say that the support service expense ratio (i.e. "overhead") can be an important indicator, especially if it is at one extreme or another, but generally speaking it is just as important to look at other factors including transparency, governance, leadership, and results.
[5] The term is also widely used among finance and accounting professionals[6] to demonstrate the profitability and viability of the operations of a business.
Business managers who use profit and loss statements (i.e. income statements) to draft business plans find expense ratios to be very useful indices in producing forecasts, and determining where cost cutting and revenue maximization opportunities exist.