A total expense ratio (TER) shows the annual costs of using an investment fund, as a percentage of the assets managed by the fund. These costs typically sit between 0.5 percent and 2 percent per year, but specialized funds (private equity funds, for example) may have much higher costs. Exchange-traded funds (ETFs), on the other hand, often have exceptionally low TERs (under 0.2 percent per year, in some cases).
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”).
The brokerage fees which a fund pays to buy and sell securities are not accounted for in the TERs of German and Swiss funds.
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).
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