In this video we will understand what is Total Expense Ratio? with its calculation along with practical example.

𝐖𝐡𝐚𝐭 𝐢𝐬 𝐓𝐨𝐭𝐚𝐥 𝐄𝐱𝐩𝐞𝐧𝐬𝐞 𝐑𝐚𝐭𝐢𝐨 𝐅𝐨𝐫𝐦𝐮𝐥𝐚?
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For investment funds, the total expenditure ratio (TER) formula is used.The TER formula is very helpful because it demonstrates investors how much they have actually earned.

𝐓𝐨𝐭𝐚𝐥 𝐄𝐱𝐩𝐞𝐧𝐬𝐞 𝐑𝐚𝐭𝐢𝐨 𝐅𝐨𝐫𝐦𝐮𝐥𝐚
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Total Expense Ratio Formula = Total Fund Costs / Total Fund Assets

𝐓𝐨𝐭𝐚𝐥 𝐄𝐱𝐩𝐞𝐧𝐬𝐞 𝐑𝐚𝐭𝐢𝐨 𝐅𝐨𝐫𝐦𝐮𝐥𝐚 𝐄𝐱𝐚𝐦𝐩𝐥𝐞
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A new fund has been managed by ABC investments. It has the following information about its new fund -

Total funds costs- $ 60,000
Total funds assets- $ 510,00,000

By using TER Formula we get,

TER = Total Fund Costs / Total Fund Assets

TER = $60,000 / $510,000,000

TER = 11.76%.

𝐔𝐬𝐞 𝐨𝐟 𝐓𝐨𝐭𝐚𝐥 𝐄𝐱𝐩𝐞𝐧𝐬𝐞 𝐑𝐚𝐭𝐢𝐨 𝐅𝐨𝐫𝐦𝐮𝐥𝐚
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#1 - TER formula is used more when the finance is actively managed, as the fund's fully operational outlays rises when it is actively managed.

#2 - If the fund is not managed actively, the TER is slightly lower. And return can dry up as well, therefore there are always expections.

#3 - The main reason TER is crucial to shareholders is that TER directly impacts their rates of return.

To know more about 𝐓𝐨𝐭𝐚𝐥 𝐄𝐱𝐩𝐞𝐧𝐬𝐞 𝐑𝐚𝐭𝐢𝐨 𝐅𝐨𝐫𝐦𝐮𝐥𝐚, you can go to this 𝐥𝐢𝐧𝐤 𝐡𝐞𝐫𝐞:- [ Ссылка ]

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