For example, according to Investopedia:
I'm looking for how the expense ratio is charged to investors in practice. For example, if I invest $1,000 per month into a fund that has a 1% expense ratio, am I charged 1% of the principal each time I buy shares of the fund? In that case, the I would pay $120 in fees per year (1% of my $12,000 investment). Another way of asking this is - is the expense ratio fee charged only when transactions are made, or is perhaps charged only once per year (or quarterly)?A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual calculation, where a fund's operating expenses are divided by the average dollar value of its assets under management. Operating expenses are taken out of a fund's assets and lower the return to a fund's investors.
Alternatively, is a 1% expense ratio charged only against returns (performance) and not principal, or possibly principal plus returns? How does that work in practice?
I used 1% as an example for simple calculations. I'm really trying to understand how the expense ratio works in practice for companies like Vanguard that have very low expense ratios.
Thank you!