This **total expense ratio calculator** measures the proportion of the costs associated with the administration against the total assets managed by an investment fund. The formula to determine this indicator is explained below the tool.

## How does this total expense ratio calculator work?

The formula used by this *total expense ratio calculator* divides the figure of the total costs associated with operating an investment fund by the figure of the total assets being administrated:

**TER = Total Fund Costs / Total Fund Assets**

Typically, when speaking about costs associated with the administration of an investment fund we are referring at all types of management fees, bank charges, transaction charges, auditor fees, interest charges, legal fees, trading fees, exist fees and any other operational expenses.

## The interpretation of the total expense ratio level

TER has a direct impact on the effective return rate an investment fund can generate and is a critical proportion to look at before investing in a certain instrument. For instance in case of a fund that returns 10% per year, if the annual TER level is at 4% then the effective return rate is 6%.

Considering all the above, the lower the total expense ratio is the better for the fund in question since investors will appreciate the fact that their return will not be affected by the operational costs and will continue or starting investing in it. In case the TER is high it may deter investors from investing their capital into the fund.

Please take account that the TER ratio varies from one fund to another, depends as well on the overall performance the fund can generate or on its risk profile. That is why whenever this figure is used to compare two or more opportunities it should be analyzed apropriately.

## Example of a TER calculation

Assuming the administration costs are estimated at $50,000 per year and that the assets managed by a specific fund are evaluated to worth $1,000,000 then the TER would be $50,000/$1,000,000 = 0.05 (or 5%).

03 May, 2015 | 0 comments
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