TOTAL EXPENSE RATIO (TER)

About:

• Mutual funds: Mutual funds are professionally managed investment vehicles which help investors to grow their money by investing in financial assets such as equities, bonds, gold and other assets.
  
  
• Total Expense Ratio (TER):
  • Mutual fund companies charge a cost to their investors for managing their schemes.
    
    
  • This cost is called the TER which is expressed as a percentage of assets managed.
    
    
  
  
  
• Components of TER: Mutual funds typically incur two types of expenses –
  • Non-recurring expenses during the launch of a fund, which in India, are usually borne by the fund house and not charged to investors.
    
    
  • Recurring expenses such as the management fee, distributors’ commission, registrar’s fee, trustee fee and marketing expenses. These expenses are total up to the TER, which is expressed as a percentage of assets managed.
    
    
  
  
  
• In India, the maximum TER that a fund can charge its investors is prescribed by SEBI.
  
  
• Now, SEBI is planning to review TER limits for mutual funds to address concerns related to concentration of profits among a few large fund houses so as to encourage healthy competition.