The expense ratio, or management expense ratio, is the total amount of expenses divided by the average net asset value of the portfolio of stocks that compose the fund, expressed as a percentage. A mutual fund with a 1% expense ratio means that 1% of the value of the entire portfolio is used to operate the mutual fund. An expense ratio is an important metric used by many experts to evaluate the relative costs of any type of mutual fund. It allows investors the opportunity to determine if a fund is more expensive to own. This ultimately cuts into returns, and illuminates how well the fund is managing its expenses as it tries to generate returns for investors.