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The efficiency ratio indicates the expenses as a percentage of revenue, with a few variations â it is essentially how much a corporation or individual spends to make a dollar; entities are supposed to attempt minimizing efficiency ratios. The concept typically applies to banks. It relates to operating leverage, which measures the ratio between fixed costs and variable costs.
The costs of owning a fund are called the expense ratio. (This is distinct from the costs of buying a fund, which are the sales loads which we describe here. The expense ratio represents the percentage of the fund's assets that go purely toward the expense of running the fund. The expense ratio covers the investment advisory fee, the administrative costs, 12b-1 distribution fees, and other operating expenses.