Total expense ratio
The Total Expense Ratio (abbreviation: TER ) or total expense ratio is a key figure that provides information about the costs that an investment fund incurs annually in addition to the issue surcharge.
It is calculated as and given as a percentage.
The Total Expense Ratio applies at the fund level and includes management fees such as As for the fund management , the portfolio management , auditors and operating costs and other fees such as custodian fees, but (in Germany and Switzerland) with no transaction costs , d. H. the costs incurred at fund level when buying / selling securities, brokerage costs (real estate funds) and the success-dependent "performance fees" to be listed separately.
It does not include the purchase and sale expenses to be paid when buying / selling funds, as well as any front-end load to be paid, as these costs are at the level of the investor .
International and national importance
The ratio goes back to the British fund research company Fitzrovia International plc (now part of Thomson Reuters Lipper ), which began in 1993 to investigate the costs of 40,000 mutual funds worldwide. Since 2004, Section 41 of the German Investment Act has stipulated that investment companies must indicate the total expense ratio (TER) in percent. The publication obligation only applies to funds that are approved for sale in Germany.
The items to be included in the TER can - 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 guideline on the TER, but its implementation is not an obligation. The guideline specifically mentions the costs for the creation, translation, filing and publication of contractual conditions and sales prospectuses, as well as all administrative costs for registering with authorities and stock exchanges, and finally the costs for advertising and direct costs incurred by the fund for the sale of the fund shares.
For equity funds, the total expense ratio is usually between 1.0 and 2.5%. According to a country comparison by Fitzrovia, the TER for funds with stocks from Germany averages around 1.4 percent. For bond funds it is around 0.8% on average and for money market funds around 0.5%; for the fund products offered in Switzerland, the TER was determined to be around 1.0% and 0.7% on average, respectively. Equity funds set up by American companies perform significantly more favorably than European ones in terms of the TER ratio.
criticism
Calculating the TER improves the comparability of individual funds, but there is no complete cost transparency , since costs that arise from purchases and sales within the fund's assets (trading costs, brokerage fees and, if applicable, stock exchange sales taxes ), as well as performance fees. are not included. The other costs, such as B. Costs for consulting services, expenses for investment committee meetings are not taken into account in the TER statement. However, all of these unconsidered cost types can make up a large part of the total costs.
Performance fees in particular have been introduced in many newly launched funds since 2002. According to the fund observers from “Fitzrovia Lipper”, in 2002 only two percent of all funds approved for distribution in Germany had success bonuses, compared with twelve percent in 2007.
The term “Total Expense Ratio” (TER) is sometimes described as grossly misleading, as it often does not contain a large proportion of the total costs, namely the transaction costs for processing stock market orders for investment funds. Under the current legal situation, an investor in German investment funds - which supposedly provide the highest possible level of investor protection - is largely at the mercy of the interests of the fund providers, as the Investment Act does not provide for the publication of transaction costs. With regard to his right to information about the use of his money, the investor in investment funds is much worse off than an investor in closed funds or other investment products.
On the other hand, the even less common real total expense ratio (abbreviation: RTER or realTER) can be less misleading . The Real Total Expense Ratio is a key figure that actually (real) represents the total expense ratio. The formula for the Real Total Expense Ratio is:
- RTER = TER + trading costs + any performance fees + any other costs at fund level.
Web links
- Extract from BVI recommendation on the TER (PDF file; 84 kB)
Individual evidence
- ↑ See en: Lipper ( Lipper in the English Wikipedia), accessed on August 31, 2019.
- ↑ Final report ( Memento of the original from November 21, 2008 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. (PDF), TER Working Group, May 2007, thedirectorsoffice.com
- ↑ Fund cost comparison (TER) mutual funds USA and Europe. (PDF, 656 kB), Lipper, October 2007
- ↑ Total Expense Ratio - A misleading term MyPrivateBanking Research, April 2010
- ↑ Thorsten Cmiel: Performance fees for investment funds: There is still a lack of transparency. Published in YEALD, Interactive Investor Magazine, October 5, 2007 ( Archived copy ( memento of the original from December 28, 2007 in the Internet Archive ) Info: The archive link was automatically inserted and not yet checked. Please check the original and archive link according to the instructions and then remove this notice. )
