# What Is Total Expense Ratio (TER)?

## Define TER in Simple Terms

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.

## TER Formula

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.

## Why Is TER Important?

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.

## Total Expense Ratio (TER) Definition 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.

## About the AuthorTrue Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.