Investiční slovník
TER: What This Number Tells You About a Fund's Cost
Key takeaways
- TER is the annual fund cost expressed as a percentage of assets — it is deducted automatically from the fund.
- It does not include trading costs such as spread or the broker's forex fee.
- For passive ETFs tracking global indices, TER is typically 0.07–0.25%; active funds have TER of 1–2% or more.
- A low TER is a necessary but not sufficient condition for low-cost investing.
TER (Total Expense Ratio) is the annual percentage fee that a fund deducts from its assets to cover management, custody, and operating costs — and you never see it as a line-item deduction, because it is reflected in the price of the fund unit.
How TER works in practice
A fund with a TER of 0.2% and assets of EUR 1,000 deducts EUR 2 per year as a cost. It does not deduct this from your account, but reduces the fund's return by this percentage compared to the pure market return. If the index rises by 8%, the fund with a TER of 0.2% will earn approximately 7.8% (simplified).
TER vs. OCF
You will also encounter the term OCF (Ongoing Charges Figure) — it is the same thing, just a different name used in EU regulation (KID documents). In practice, TER and OCF are interchangeable. OCF is sometimes slightly lower because it excludes certain one-off costs.
What TER does not include
TER only captures costs inside the fund. It does not capture:
- Spread — the difference between the buying and selling price when trading an ETF on an exchange.
- Broker's forex fee — the currency conversion fee when purchasing.
- Broker commission — the fee charged for executing a trade.
This is why TER is a necessary but not sufficient piece of information. The full picture of costs also includes broker conditions — see the article on the true costs of investing.
What TER is "good"
For passive ETFs tracking global indices (MSCI World, S&P 500), TER ranges from 0.07% to 0.25%. Actively managed funds typically carry a TER of 1–2%, sometimes higher. Research consistently shows that a higher TER does not lead to higher returns — if anything, the opposite. The passive approach with low TER is described in the article active vs. passive investing.
FAQ
What is TER in simple terms?
The annual fund charge expressed as a percentage of assets. A fund with a TER of 0.2% deducts 0.2% of its assets each year to cover management costs. It is reflected in the unit price — you don't see it as a direct payment from your account.
What TER is good for an ETF?
For passive ETFs on large indices (S&P 500, MSCI World), a TER of 0.07–0.25% is considered low and standard. Funds with a TER above 0.5% for a passive strategy are expensive. Active funds typically carry a TER of 1–2%.
What is the difference between TER and OCF?
Practically nothing — they are different names for the same figure. OCF (Ongoing Charges Figure) is the term used in EU regulatory documents (KID). TER is the older, internationally more widespread term. In practice, they are interchangeable.
Does TER include broker fees?
No. TER covers only costs inside the fund — management, custody, audit. Broker fees for trading, spread, and currency conversion are separate costs not captured by TER.