Total expense ratio (TER) (Gesamtkostenquote)

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German termGesamtkostenquote (TER)

Read firstCost drag / fees

Deep divesETF — Exchange-Traded Funds

Total expense ratio (TER) is a fund's yearly running cost, expressed as a percentage of the money invested — it bundles the management fee, administration, custody, and other recurring charges into a single comparable number. A fund reporting a TER of 0.20% costs about €20 a year per €10,000 held. Funds publish TER in their factsheet (Basisinformationsblatt, key information document) and recalculate it annually.

Why it matters

TER is the standard figure funds publish so an investor can estimate cost drag (cost drag / fees) — the share of return lost to fees each year — without reading a full cost breakdown. Comparing TER across funds that track a similar strategy is one of several criteria used when evaluating funds, alongside fund size, replication method, and tracking difference against the index. A lower TER does not automatically mean a better fund for a given investor — it is one input among several, weighed against tracking accuracy, fund size, and how well the underlying index fits the investor's goals. TER is not the complete cost picture, either: it excludes trading costs the fund incurs buying and selling its holdings, bid-ask spreads, and taxes, so the number on a factsheet understates what an investor actually pays over a year.

Worked examples

1. Reading TER as an annual euro cost. A depot (brokerage account) holds €15,000 in a fund with an illustrative TER of 0.20%. The annual cost is 0.20% x €15,000 = €30. Funds fold this cost into the daily fund price rather than sending a separate invoice, so it is invisible unless calculated from the published rate.

2. Comparing two fund types. Funds that track a broad index passively tend to report a markedly lower TER than funds where a manager actively selects holdings, because active management needs research staff and more frequent trading. The table below uses illustrative rates to show how the same €15,000 produces different annual costs depending on which TER applies.

Fund type (illustrative)	TER	Annual cost on €15,000
Passively managed index fund	0.20%	€30
Actively managed fund	1.20%	€180

The €150 difference recurs every year the money stays invested, and — per cost drag / fees — compounds into a much larger gap in final wealth over a multi-decade horizon.

Check yourself

A fund reports a TER of 0.15%. An investor holds €25,000 in that fund. How many euros does the TER cost in one year?

Fund A has a TER of 0.20%. Fund B has a TER of 1.10%. An investor is comparing them for a €12,000 holding. How many more euros per year would Fund B cost than Fund A, on that balance?

A fund's factsheet lists its TER as 0.25%. Which costs does that 0.25% figure already bundle together?

Only the portfolio manager's salary — every other cost is billed separately.The management fee, administration, and custody costs, combined into one recurring annual percentage.Every cost of holding the fund, including the trading costs and bid-ask spreads incurred when the fund buys and sells its holdings.A one-time charge applied only in the year an investor first buys into the fund.

Which of the following statements about TER are true? (Select all that apply.)

TER is charged as a recurring annual percentage of assets held, not as a one-time purchase fee.A fund with a lower TER than another is automatically the better choice, regardless of any other factor.TER excludes trading costs and taxes, so the real cost of holding a fund can exceed its published TER.Actively managed funds typically report a lower TER than passively managed index funds tracking the same asset class.