Total Expense ratio or TER represents the annual fund operating expenses of a scheme, expressed as a percentage (%) of the fund’s daily net assets. All expenses of an AMC must be managed within the maximum limits of TER as per SEBI Mutual Fund Regulations.
As per the current regulations, the TER allowed is 2.25% for the first Rs.500 Crores, 2.00% for the next Rs.250 Crores, 1.75% for the next Rs.1,250 Crores, 1.60% for the next Rs. 3,000 Crores and 1.50% for next Rs 5,000 Crores.
On the next Rs. 40,000 Crores of the daily net assets, TER reduction of 0.05% for every increase of Rs.5,000 Crores of daily net assets or part thereof, on the next Rs. 40,000 Crores of the daily net assets. Balance of assets, the TER would be 1.05%.
For example - An expense ratio of 2.00% per annum means that, each year 2.00% of the schemes’ total assets (AUM) can be used to cover operating expenses like administration, management, advertising and brokerage payment, etc.