A total expense ratio, or TER, shows the annual costs associated with an investment fund as a percentage of total fund assets. These costs typically sit between o.5% and 2% per year. The costs of certain funds, such as private equity funds, may be even higher than that. ETFs, on the other hand, are generally cheaper than actively managed funds.
Costs include general management fees, custody fees for fund securities, wages, and costs associated with publication, revisions and administration.
There are other costs which are not included in the TER. These include fees charged when you buy into a fund (the “initial charge”) and possible charges when funds are sold (the “sales charge”).
In Switzerland and Germany, internal fund transaction costs (brokerage fees), which apply to purchases and sales of securities, are not accounted for in the TER.
The “synthetic TER” also leaves out internal transactions, but does include the TER of third-party funds.
The “real TER” or RTER should include all internal fund transactions, unlike the TER or the synthetic TER. However, the RTER is not widely used in Switzerland.
But even the RTER does not include external fees, like those charged by a bank or wealth manager for services rendered. Costs which are not accounted for in the RTER may include initial charges (when a fund is bought), sales charges (when a fund is sold) and custody fees charged by a bank (not internal fees, but those charged by banks at which funds are deposited).