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Decoding Total Expense Ratio (TER) of mutual funds
News
- SEBI has recently asked mutual funds to reduce their TER or Total Expense Ratio.
What is Mutual Fund?
- A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities.
What is Total Expense Ratio (TER)?
- The asset management companies who managed these funds on the behalf of investors usually charged a cost which is some percentage of investment. This cost known as Total Expense Ratio (TER).
- Securities and Exchange Board of India (SEBI) prescribed the maximum TER that a fund can charge their investors.
- For an example, if a total profit earned on an investment is 15% and the asset management company charges 2% as TER from investors, then the total profit for an investor will be 15%-2%=13%.
Thus, TER has direct impact on the money invested by an investor.
- Impact of the recent changes
- Increase in returns to the investor as he has to pay a low fee to the asset management company.
