Total Expense Ratio
The Total Expense Ratio (abbreviation: TER) or total expense ratio is an indicator that provides information about additional fees and expenses associated with an investment fund annually on the sales charge.
The Total Expense Ratio accesses at the level of the Fund and includes administrative fees, such as for fund management, portfolio management, auditors and operating costs, and other fees such as custodian fees, however ( in Germany and Switzerland ), excluding transaction costs, ie incurred at the fund level in the securities purchase / sale costs, brokerage costs ( real estate fund ) and separately to be contained, performance-based "performance fees".
It includes not to be paid to the Fund buying / selling fund buying and selling expenses as well as a possibly off issuing surcharge, as these costs are at the level of the investor.
International and national importance
The code number is (now Lipper Fitzrovia ) back to the UK funds research company Fitzrovia, which began in 1993 to investigate the cost of 40,000 mutual funds worldwide. Since 2004 prescribes § 41 of the German Investment Act, that investment companies are required to indicate the total expense ratio ( TER = ) in percent. The disclosure requirement applies only to those funds that are approved for sale in Germany.
The included in the TER positions - depending on national circumstances - vary from country of origin to country of origin. The Federal Association of Investment Companies ( BVI Bundesverband Investment und Asset Management eV) has issued a directive on TER, but implementation is not an obligation. It is particularly mentioned in the Directive, the costs for the preparation, translation, filing and publication of contract terms and sales brochures, further all administrative costs for registering with authorities and stock exchanges and, finally, the amounts attributable to the fund costs of advertising and direct costs of selling the fund units.
For equity funds, the total expense ratio is usually between 1.0 and 2.5 %. After a country comparison of Fitzrovia is fund shares from Germany, the TER average at about 1.4 percent. For bond funds, there is an average of about 0.8 % and about 0.5% of money market funds, funds for the products offered in Switzerland was found to be around 1.0 % and 0.7 % on average a two-tenths higher TER. Launched by American companies Equity funds cut in comparison to European in the TER figure from much cheaper.
Criticism
By calculating the TER Although the comparability of individual funds is improving, complete cost transparency is not given, as costs that are not from purchases and sales within the fund's assets arise ( trading costs, brokerage fees and, if applicable stamp duties ), as well as performance-based compensation (performance fees) are included. The other costs, such as Costs for consulting services, fees for investment committee meetings, refer to the disclosure of the TER not be considered. However, all these unrecognized types of costs can thereby account for a major chunk of the total costs incurred.
Just Performance fees have been introduced in many newly imposed Fund since 2002. According to observers of funds " Lipper Fitzrovia " only two percent of all funds licensed for distribution in Germany were provided with performance bonuses, while there were twelve percent in 2007 already in 2002.
In part, the term " Total Expense Ratio " (TER ) is described as grossly misleading, since it does not contain an often large share of total costs, ie transaction costs in the settlement of stock exchange orders of the investment fund, straight. In the current legal situation, an investor in the German investment fund - where supposedly the highest possible investor protection is to be ensured - the interests of the fund providers largely unprotected, as the Investment Act does not provide for publication of transaction costs. In terms of its access rights for use of his funds of investors in mutual funds is significantly worse off than an investor in closed-end funds or other investment products.
Contrast, less misleading, the even less popular Real Total Expense Ratio (abbreviation: WORDS or realter ) be. The Real Total Expense Ratio is a figure that represents the total expense ratio ( TER ) is actually ( in real terms). The formula for the Real Total Expense Ratio is: WORDS = TER trading costs any contingency fees any and all other costs at the level of the Fund.