Total expense ratio
What is the total expense ratio?
The total expense ratio (TER) measures the overall costs associated with running an investment fund. These operating expenses include management fees, legal fees, auditor fees and other admin costs.
Where have you heard about the total expense ratio?
It might not be something you use, but the size of the TER is very important if you invest in funds as the costs affect your overall returns. It gives you a clearer picture of how much will be deducted from your portfolio.
What you need to know about the total expense ratio...
The ratio is calculated by dividing the total cost of the fund by the fund's total assets. The figure is expressed as a percentage.
For example, if a fund generates a return of 6% for the year, but has a TER of 2%, your profit will only be 4%. It’s important to note that the expenses are still deducted whether or not the fund has made a gain or loss.
Actively managed funds that specialise in a particular sector tend to have higher charges, while index funds have lower costs because they require less management.
Find out more about the total expense ratio...
Read our definition of management fees for more information on investment fund costs.