The Total Expense Ratio is the annual fee charged by the mutual fund scheme for managing a mutual fund scheme. The TER covers all the expenses the mutual fund incurs such as transaction costs, investment management fees, registrar fees, custodian fees, audit fees, distributor commission, sales & marketing, administrative expenses etc. TER is calculated as a percentage of the fund’s daily net assets. The Net Asset Value (NAV) of a mutual fund scheme is calculated after deducting the applicable expenses daily and hence the investor doesn’t need to pay it separately. The Securities & Exchanges Board of India has given a framework on the charge structure for every fund category. The bigger the fund assets grow, the TER percentage keeps reducing. The SEBI framework defines the upper limit and conditions for changing the total expense ratio making it a win-win situation for investors, mutual fund companies and the mutual fund distributors.
