Total Expense Ratio Formula

Financial Statement Analysis

Total Expense Ratio Formula (Table of Contents)

Total Expense Ratio Formula
TER Calculator
TER Template

Total expense ratio (TER) formula is used for investment funds. TER formula is very useful for investors because it shows them how much they have actually earned. No, it’s not enough to know the return on the investments; it’s also important to know the total expense ratio.

Here’s the TER Formula –

Example of TER Formula

Let’s take a simple example to illustrate the TER formula.

Binary Investments have been managing a new fund. It has the following information regarding its new fund –

Total fund costs – $40,000
Total fund assets – $410,00,000

Find out the TER of this new fund.

We know both the total fund costs and the total fund assets.

By using the TER formula, we get –

TER = Total Fund Costs / Total Fund Assets
Or, TER = $40,000 / $410,000,000 = 9.76%.

The investors need to see the Total Expense Ratio of this new fund and then compare the same with other investments to see whether this is a worthy investment for the investors or not.

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Total Expense Ratio Example – Vanguard

As we can see from the below table, TER of Vanguard funds range from 0.11% to 0.16%

source: vanguard.com

Federal Money Market Fund has an expense ratio of 0.11%, whereas, the California Municipal Money Market Fund has an expense ratio of 0.16%.

Explanation of TER Formula

Understanding the TER is important. It has two components.

The first component is the total fund costs. Total fund costs mainly include the management fees. Along with that total fund costs also include legal fees, trading fees, operation expenses, and auditing fees.
The second component of the TER is total fund assets. In the case of any investment funds, a group of people manages the funds. And these funds are the assets of individuals who have invested into the instrument (e.g. mutual funds). These funds are called fund assets. In simple terms, fund assets are the market value of the funds managed by a fund manager or a team of management.

When we compare the fund expenses and the fund assets, we get a proportion of expenses in terms of assets. This TER can be used to find out how much expenses actually happen.

Use of TER Formula

The main reason for which TER is important to the investors is that TER directly affects the returns on their investments.

For example, let’s say that Mr. Rout has invested into a portfolio. He is expecting a return of 10% on his investments. Now, if he can find out the TER, he will get to figure out the actual return on his investments. Let’s say that the TER is 4%; then the net return would be actually 6% even if it seems that he is getting a return of 10% on his investments.

TER formula is more when the fund is actively managed; because when the fund is actively managed the operational expenses of the fund get increased. For example, if a fund is actively handled, then the personnel costs will likely to go up. Actively managing a fund may also ensure a higher return and a quick reaction time.

On the other hand, if the fund is not actively managed, the TER is lesser. And return may also dry up. However, there are always exceptions.

TER Calculator

You can use the following TER Calculator.

Total Fund Costs
Total Fund Assets
Total Expense Ratio Formula =

Total Expense Ratio Formula =

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TER Formula in Excel (with excel template)

Let us now do the same example of TER formula in Excel.

This is very simple. You need to provide the two inputs of Total Fund Costs and Total Fund Assets.

You can easily calculate the ratio in the template provided.

You can download this total expense ratio template here – Total Expense Ratio Excel Template

Total Expense Ratio Formula | TER Calculator (with Excel Template)