By Admin 
Investors often pay attention to returns while investing in mutual funds, but ignore the expenses related to it. Whereas, it is very important to know that the fund house charges some fee to run the mutual fund scheme. The same fee is called Total Expense Ratio (TER).
What is Total Expense Ratio?
According to SEBI Mutual Fund Rules 1996, mutual fund companies are allowed to collect some operations to manage any scheme. This includes costs such as investment management fees, marketing, administration, transactions expenses, custodians and audit fees. All these expenses are a part of the total net asset value of the fund, which is called Total Expense Ratio.
How is the term calculated?
Total Expense Ratio is calculated as one percent. This percentage is based on the average net asset value (NAV) of the fund. It is calculated from this formula:
Ter = (Total costs incurred / total net assets) × 100
Here Total costs include all those expenses that are in running the funds and Total Net Assets show that date of that fund to the total market value.
The nature of Ter in India is “fungible”, that is, there is no fixed limit on different parts of the expenditure in a fund, but the total TER should be within the limit set by SEBI.
What is the harm if the term is more?
It is often believed that more TER means less benefit, but it is not always. Many times a fund can give good returns despite more expenses. At the same time, some funds perform average despite less term. Therefore, do not assess the TER alone, but try it mixed with the total returns of the fund and the rest of the investment norms.
What to keep in mind while investing?
Before investing in any mutual funds, compare the TER with the return, risk level, track records of fund manager and for investment objective. If two funds are performing almost the same, then a low -term fund can be more beneficial for you because it reduces the expenditure.
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