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Total Expense Ratio (TER) is an important metric to consider when evaluating a mutual fund. Investors often pay close attention to the TER when assessing a fund, as it measures the total operating costs relative to the fund’s assets. The TER is displayed as a percentage, which allows investors to compare different funds with ease.
The total expense ratio is also known as the "net expense ratio” or the “after reimbursement expense ratio." The TER is calculated by dividing the fund's annual operating expenses by its average net assets, and multiplying the result by 100. The average net assets used in the calculation are derived by deducting any borrowing costs and adding the market value of any assets borrowed.
The TER consists of the following components: transaction fees, custodial fees, brokerage commissions, legal and accounting fees, management fees and other distributed and miscellaneous expenses. Some of these expenses are charged directly to the investor, while others are paid out of the fund's assets.
For instance, a fund’s transaction fees may include the cost of buying and selling securities (e.g. purchasing stocks and bonds), as well as the cost of obtaining research data and advice. Custodial fees are paid to the custodian, which is usually a bank, for the safekeeping of the fund’s assets. Brokerage commissions may be charged when a fund completes transactions with a stockbroker or other intermediate financial services provider.
The management fee is the most significant component of the TER, as it involves the cost of the fund manager’s services. The management fee can range from 0.2% up to 2% annually, and is usually taken into account as part of an advisory or discretionary service. In addition, some funds may also incur other distributed and miscellaneous expenses such as ATS fees, software maintenance fees, and administrative costs.
When comparing two funds, investors need to pay careful attention to the TER. A low TER may mean that the fund is more cost effective, and thus may be more suitable for the investor’s goals and objectives. On the other hand, a high TER may indicate that the costs could render the fund a less attractive investment, once accounting for its fees relative to the performance of its assets.
Ultimately, the TER is a reliable measure of fund’s operational efficiency, and can therefore be used to assess a fund’s suitability by investors. By taking into account the total expense ratio of a fund, investors can make a more informed decision when considering the costs of investing in a mutual fund.
The total expense ratio is also known as the "net expense ratio” or the “after reimbursement expense ratio." The TER is calculated by dividing the fund's annual operating expenses by its average net assets, and multiplying the result by 100. The average net assets used in the calculation are derived by deducting any borrowing costs and adding the market value of any assets borrowed.
The TER consists of the following components: transaction fees, custodial fees, brokerage commissions, legal and accounting fees, management fees and other distributed and miscellaneous expenses. Some of these expenses are charged directly to the investor, while others are paid out of the fund's assets.
For instance, a fund’s transaction fees may include the cost of buying and selling securities (e.g. purchasing stocks and bonds), as well as the cost of obtaining research data and advice. Custodial fees are paid to the custodian, which is usually a bank, for the safekeeping of the fund’s assets. Brokerage commissions may be charged when a fund completes transactions with a stockbroker or other intermediate financial services provider.
The management fee is the most significant component of the TER, as it involves the cost of the fund manager’s services. The management fee can range from 0.2% up to 2% annually, and is usually taken into account as part of an advisory or discretionary service. In addition, some funds may also incur other distributed and miscellaneous expenses such as ATS fees, software maintenance fees, and administrative costs.
When comparing two funds, investors need to pay careful attention to the TER. A low TER may mean that the fund is more cost effective, and thus may be more suitable for the investor’s goals and objectives. On the other hand, a high TER may indicate that the costs could render the fund a less attractive investment, once accounting for its fees relative to the performance of its assets.
Ultimately, the TER is a reliable measure of fund’s operational efficiency, and can therefore be used to assess a fund’s suitability by investors. By taking into account the total expense ratio of a fund, investors can make a more informed decision when considering the costs of investing in a mutual fund.