Q: My mutual fund prospectus has two expense ratios listed -- gross and net. Isn't the expense ratio supposed to be an all-in-one figure?

It's true that the expense ratio is an expression of a mutual fund's management fees, administrative expenses, and other costs all in a single number. For example, a 1% expense ratio means that you'll pay $10 per year in investment fees for every $1,000 in fund assets you have.

However, mutual fund prospectuses generally include two expense ratios: the gross expense ratio and the net expense ratio. Most of the time, the two numbers are the same. But they don't have to be.

The gross expense ratio accounts for all of the expenses associated with a fund. This includes the fees paid to the fund's managers, administrative expenses such as office space and employee salaries, and other costs like marketing expenses.

Here's where the net expense ratio comes in. Many funds offer temporary fee waivers, or discounts, in order to attract investors. This is why the net expense ratio is often lower than the gross expense ratio. It reflects any temporary discounts -- for example, if a fund's gross expense ratio is 1.00% and the managers agree to a temporary 10-basis-point fee reduction, it would have a net expense ratio of 0.90%.

In short, the net expense ratio is how much investors are actually paying to invest in a fund. The gross expense ratio is how much you could pay. For this reason, I always suggest making investment decisions with the gross expense ratio in mind.