What is the expense ratio and how it is calculated?

What is the expense ratio and how it is calculated?

Expense ratio is an annualised percentage representing the management fees charged by the fund.

In practice, it is converted to a proportionate daily percentage and deducted daily by the fund from the investment value. The NAV is declared after deducting this fees.

Illustration: 

Let's say you invest $100 today. Entire $100 gets invested under your name.

Next day, assume that the portfolio of the fund goes up by 1%. So $100 becomes $101. From this the fund will deduct their management fees of 1.75%/250 = 0.007 (there are 250 trading days in a year) and will tell you that instead of $101, the NAV is $100.993.

In the same way, let's say instead of going up by 1%, it went down by 1% the next day. So $100 -> $99. Management fees is still 1.75%/250. So that will be deducted in any case. So instead of $99 it will become $98.993.

This way you pay management fees only for the duration you are invested in.