How ETFs Accrue and Deduct Management Expenses

Summary

The note explains that an ETF’s annual expense ratio is generally accrued over time rather than collected as a single yearly charge. It gives a daily NAV-based example: for an annual fee of 0.03%, the per-share deduction is calculated as NAV multiplied by the annual rate and divided by 252 trading days. The deduction is reflected in the fund’s value, with cash holdings—including accumulated dividends—available to cover expenses.

The answer emphasizes that practices depend on the specific ETF, so the prospectus is the authoritative source. The example describes one common approach, not a universal schedule, and does not discuss differences in accounting conventions or how expenses affect tracking error.

Key ideas

• ETF expenses may be accrued daily against net asset value.
• The example divides the annual expense rate across 252 trading days.
• Cash held by the fund can be used to pay expenses.
• Expense treatment varies by ETF and should be checked in its prospectus.

Tags

# When does an ETF take out expenses?


# When does an ETF take out expenses?












When does an Exchange Traded Fund (ETF) take out expenses (for example 0,3% on a yearly basis)? Does it happen daily, or once yearly or according to some other scheme? Where does it take them from?

## Answer by LazyCat (score 6)

https://quant.stackexchange.com/a/2250

In general, it depends on the particular ETF, and should be checked in the prospectus, but one standard way (e.g. SPY) is to do it on a daily basis based on NAV published after the close. E.g. NAV per share = X$, so the expenses taken out would be X*0.03/(100*252). Again usually ETF's have cash component (with aggregated dividends etc), so there's no problem with taking out the expenses.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.