Why is expensive ratio important its getting good returns

The expense ratio is an important factor to consider when evaluating mutual funds and exchange-traded funds (ETFs) because it directly affects your investment returns. Here are the key points to understand:

1. Impact on Returns: A higher expense ratio can significantly erode returns over time. This is because a larger portion of your investment is used for fees, which reduces the amount of capital available to generate returns.
2. Comparative Analysis: Even a small difference in expense ratios can lead to significant differences in returns over time. For example, a fund with a 0.15% expense ratio and another with a 0.75% expense ratio can have significantly different net returns over a 30-year period.
3. Industry Trends: The mutual fund industry has seen a general trend of decreasing expense ratios over the past two decades, with many index funds and ETFs offering expense ratios below 0.10%. This is partly driven by the growth of passive investment strategies, which tend to have lower costs.
4. Active vs. Passive Funds: Active management is often associated with higher expense ratios due to the costs of research, trading, and management. Passive funds, such as index funds and ETFs, generally have lower expense ratios because they simply track a market index and do not require the same level of active management.

In conclusion, while a high expense ratio does not necessarily mean that a fund is providing poor returns, it can make it more difficult for a fund to generate high returns relative to its benchmark. Investors should consider the expense ratio in conjunction with other factors such as the fund's investment strategy, performance history, and overall fees when making investment decisions.