Calculation of Mutual fund Expense Ratio (TER)

As we discussed Total Expense Ratio (TER) is total expenses expressed as a percentage of AUM. TER of a fund is calculated using balance sheet of the fund.

Calculate Total Expenses during an accounting period from Liabilities Section of balance sheet. Calculate Total Net Assets of a fund. Then calculate TER as below.

TER = (Total Expenses during an accounting period) * 100 / Total Net Assets of the fund

TER is also expressed in basis points by multiplying the percentage figure by 100. For example TER of an index fund of ABC Fund Company is 0.3% then it can be said that its TER is 30 bps.

TER of index funds is usually low in the range of 15 – 30 bps whereas it is higher for growth funds. The usual range for growth funds is 150 -300. However it can be more for some special funds which require more research.

At the time of fund launch expense details are not available. So TER is not published in the NFO document. But once a fund completes a certain period it is shown in the prospectus.

Let’s say a fund’s TER is 2%. That means the fund company takes out 2% of funds from the unit holders pool money every year at a certain date. This money used for company expenses and remaining amount is its profits. Most of the funds charge a percentage of exit load on redemptions within 1 year to account for annual expenses.

December 12, 2009 | Filed Under Mutual Funds

Comments

One Response to “Calculation of Mutual fund Expense Ratio (TER)”

Ajay on January 30th, 2010 8:51 am

Kindly provide me with the calculation of custodian fees which are done for mutual fund. Custodian fees is reflected in financials of the mutual fund/AMC

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