Total Expense Ratio

Total Expense Ratio

The Total Expense Ratio, or TER, is measuring the total costs of a fund investment. Total costs may include various fees (trading, auditing) and other expenses. The TER is calculated by dividing the total cost by the fund's total assets and is denoted as a percentage. It may vary from year to year.

Typically it consists of the annual management charge (the fee that the fund company charges annually to manage the fund, typically commission paid to fund managers) plus 'other' charges incurred with running the fund. These other charges can consist of share registration fees, fees payable to auditors, legal fees, and custodian fees.

Because it is inclusive of these other charges, it is a more reliable indicator of the 'drag' on a funds performance than just using the annual management charge alone. When publishing factsheets, Fund companies tend to make it difficult for a private investor (in the UK at least) to extrapolate the Total Expense Ratio about the fund that they are investigating. Unlike the United States however, where it is mandatory to make it as clear and as concise as possible.

ee also

* Expense ratio


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