The total expense ratio, or TER, is a measure of the overall cost of operating an investment fund relative to its asset portfolio. Also called the net expense ratio or the after reimbursement expense ratio, TER is calculated by dividing a fund's total costs by its total assets. The costs included in TER are operating fees, such as management fees, trading fees, auditor fees, and other operating expenses. The total assets in a fund can be derived from financial statements or may be disseminated to investors through a prospectus. TER is important to investors because these costs are usually withheld from returns rather than paid directly, and so they reduce the income from the fund. For example, if a fund generated a return of 8% but the TER was 3%, then the investor will only see a 5% return. A factor that adds to the cost of running a fund is active management. Actively managed funds involve more human oversight and generally undertake more transactions, adding to the operating cost. Contrarily, automated funds often have significantly lower personnel costs. For example, index funds generally require less management than mutual funds, and so they tend to have a lower TER. An important note is that some costs, such as commission, stockbroker fees, and annual advisor fees, are often not included in the TER calculation. Fees charged on the buying and selling of shares or investments within the portfolio are also not included.Define TER in Simple Terms
TER Formula
Why Is TER Important?
Total Expense Ratio (TER) FAQs
TER stands for the Total Expense Ratio.
The total expense ratio, or TER, is a measure of the overall cost of operating an investment fund relative to its asset portfolio.
The Total Expense Ratio is also called the Net Expense Ratio or the After Reimbursement Expense Ratio.
TER is calculated by dividing a fund’s total costs by its total assets.
TER is important to investors because these costs are usually withheld from returns rather than paid directly, and so they reduce the income from the fund.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
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