The Total Expense Ratio (TER) is ratio of a fund's total costs. The TER comprises all administration and distribution fees that the fund is obliged to pay in a given financial year. This includes custody fees, marketing costs and other expenses.
The TER does not encompass transaction costs. These include, for example, brokerage and stock market fees as well as any tax payments. These costs are incurred when buying and selling fund units and are not deducted from the fund assets.
The TER is expressed as a percentage. It signifies the ratio between the costs of the fund and the Net Asset Value (NAV). The lower the TER, the lower the costs that the fund is burdened with. This allows the costs of various funds to be compared with one another. This is important, as high costs diminish the overall returns of a fund.