July 26, 2014

TER Explained

The Total Expense Ratio or TER is an important factor to consider when investing in a fund, because it can eat away at your returns. The TER refers to the management of fees associated with a fund as well as further expenses such as those including; legal, auditing and various other operational expenses.

The formula for deriving TER is Total Fund Costs / Total Fund Assets = TER.

Putting the TER into practice, reveals its importance ot investors. Let’s assume a fund produces an annual return for the year of 15%, but its TER is 6%. This would mean that the fund will not be delivering a return of 15%, rather 9% (15-6).

Therefore it is always important to consider the TER of a fund.