Total Expense Ratio (TER)

Total Expense Ratio (TER) provides information regarding total annual costs for investment funds. The costs include expenses like legal fees, management fees, and other operational expenses.

Total Expense Ratio (TER)

Total Expense Ratio (TER) provides information regarding total annual costs for investment funds. The costs include expenses like legal fees, management fees, and other operational expenses. Total Expense Ratio is also called Expense Ratio.

 

Calculation of Total Expense Ratio

Total Expense Ratio is the ratio between total fund costs and total fund assets. The costs that are included in the calculation of Total Expense Ratio are operating expenses such as audit fees, bank charges, VAT amount, interest charges, management fees, and exit fees.  The output is expressed as a percentage and is calculated on a yearly or annual basis.



Interpretation of Total Expense Ratio

The Total Expense Ratio varies between one fund and another.  All else being equal, an investor should choose the fund with lower TER. 

A high Total Expense Ratio does not necessarily mean that the investment is a bad one.  In some cases, a high TER is justified based on Past (and expected future) fund performance.



The Total Expense Ratio can vary from less than 0.5% to 3% or higher.  It has been shown in past studies that the TER plays a significant role in determining the long term profitability of a fund.  It is therefore very important for an investor to know the Total Expense Ratio.

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