What is mutual fund total expense ratio (TER)?
TER or total expense ratio indicates the total fee you pay for you for the services of the mutual fund (and if there is one, the distributor too!)
It typically includes the remuneration of the team that manages your investment (including the fund manager), marketing costs of the fund house, distributor charges among other expenses that are required for the well-functioning of a fund house.
TER is strongly regulated by SEBI – the regulator of India’s securities’ market.
TER is typically the highest for equity funds (think large cap funds, small cap funds, mid cap funds etc) and any discussion on TER more often than not is implicit in the form of ‘direct plans versus regular plans.’
The following represents SEBI’s ceilings on the maximum TER mutual fund houses can charge their investors for various schemes –
For every individual mutual fund scheme, there are two plans – direct and regular – which are completely identical except for the TER. The TER of the regular plan includes distributor charges (commission or brokerage) and hence is always higher than that of the direct plan.