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.

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