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You're not actually buying the S&P 500 index, you're buying one of many funds that try to closely mimic the S&P 500. Each separately managed fund will have their own fee structure, so that's why your fee is different than the 0.2% quoted. In addition, a fund may have a lower fee for accounts over a certain size. If I had to guess, the 0.2% expense ratio was likely for Vanguard and your fund isn't managed by Vanguard.

As to where the money goes, it pays the managers who invest and administer the funds, which includes keeping track of your account. Part of the expense ration difference can be due to the size of the fund. A $1 billion portfolio is cheaper to run than a $10 million portfolio on a per dollar invested basis.

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