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The word TER stands for Total Expense Ratio and represents the cost that investors need to sustain in order to invest in a certain ETF. The TER is expressed as a percentage and refers to a period equal to one year.
What Does the TER Include?
The ETF expense ratio covers all the costs associated with an ETF. These can usually be management costs, legal and auditor expenses and many more. It has thus been conceived as a comprehensive fee that includes all the costs incurred by the fund issuer.
How is It the TER Deducted?
The TER is deducted on a daily basis on the fund’s assets. It is important to underline that the TER is not applied to the initial value of your investment but rather to its market value.
Active Vs Passive ETFs TER
Investors should note that active ETFs display on average higher TERs. This is mainly due to the fact that with active ETFs there is usually a team of people involved who take active investment decisions.