TER (Total Expense Ratio)

The TER is the annual cost of a fund. In index funds it ranges from 0.05% to 0.30%. A small difference that over 30 years can amount to tens of thousands of euros.

Definition

The TER (Total Expense Ratio) is the annual percentage of a fund's assets used to cover management, administration, custody, and other operational costs. It is deducted directly from the fund's NAV on a daily basis, so investors do not pay it explicitly but see their returns already net of this cost.

The TER is the most important cost difference between passive index funds (0.05-0.30%) and active funds (1-2%). In a long-term portfolio, this difference is enormously amplified by compound interest: a 1% annual difference in fees means, over 30 years at 8% gross return, approximately 25% less final capital.

Beyond the TER, some funds have additional costs not included, such as subscription/redemption fees, the bid-ask spread impact in ETFs, and internal transaction costs. The TER is the most useful metric for comparing similar funds.

Practical example

You invest €10,000 in two different MSCI World funds for 30 years, both with 8% gross return. Fund A: TER 0.12% → net return ~7.88% → final capital ~€93,000. Fund B: TER 1.50% → net return ~6.50% → final capital ~€66,000. The 1.38% TER difference results in ~€27,000 less at the end.