What are expense ratio and TER?
Expense ratio is defined as per unit cost spent for managing funds. Expenses generally include
management fees and operating expenses. It is the total percentage of fund assets used for administrative, management, advertising (12b-1), and all other expenses. While you will not see a bill, this percentage of your investment in the fund will be paid to the fund management company. The expense ratio does not include sales loads, brokerage commissions, or trading costs such as spread.
Total Expense Ratio (TER) is a measure associated with managing and operating a mutual fund. These primarily comprise of management fees and additional expense, such as trading fees, legal fees, auditor fees and other operational expenses. It is expressed as a percentage of Assets managed. While TER is an important selection criterion for long term investors, it should not be the only criteria for selection of mutual funds.
Index funds typically have lower expense ratios than actively managed funds.
Why should you invest in index funds?
Low Cost: Since index funds are passively managed, the total expense ratio (TER) is very less as compared to the actively managed ones. While an actively managed fund may charge you anything between 1-2% as TER, an index fund would typically charge ...
Why are index funds popular in other parts of the world?
Index funds are considered as ideal for constructing a core portfolio for long term wealth creation due to their diversification benefits, low cost and low portfolio churn. Globally, Index funds are popular due to the following reasons – Easy - Index ...
What are the major differences between Index Funds vs ETFs?
While both Index Funds & ETFs are similar in their function, they tend to differ in operational and execution characteristics. ETFs as their name suggests are traded on their exchange in real time whereas Index funds like typical mutual fund are not. ...
Who manages Index Funds?
Just like actively managed mutual funds, index funds are also managed by fund managers. But fund managers have a little role to play, because constituents of index funds seldom change. Managers just buy and hold all the securities of a particular ...
Are all index funds the same?
All index funds are not same because different index funds track different indices. But the philosophy behind investing remains the same. There are different types of indices in India: Benchmark indices like BSE Sensex and NSE Nifty Sectoral indices ...