TER reduces by 0.05% with every INR 5000 crore increase in AUM TER for Equity mutual fund schemes (Effective from April 1, 2019): AUM (INR Crores) This new TER structure has been implemented from April 1, 2019. In September 2018, Securities and Exchange Board of India (SEBI) introduced a new rationalized total expense ratio structure for mutual funds, which will help in maximizing returns for the investor. SEBI’s new TER Structure for Equity mutual funds This can bring a substantial difference to the size of the corpus that the investor can create over a longer time frame. Thus there is no distributor, advisor or agent fee which is otherwise payable in the case of regular mutual fund schemes. Thus, a higher TER would mean lower Net Asset Value and vice versa.ĭirect plans have the lowest TER because there is no intermediary involved. Said differently the NAV of a fund already accounts for the expense ratio and is net of all fees and charges that the Mutual Fund companies charge. The Net Asset Value (NAV) of a scheme is calculated every day after deducting the total expenses incurred. : Warren Buffett, Chairman, Berkshire Hathaway, 1996 – Shareholder Letter If, during the year, the return for this fund was 12%, it means the actual return for Mr X was 10%. ( This also means that only INR 4,90,000 was available for investment ) Thus, out of INR 5,00,000 invested by Mr X, INR 10,000 will go towards expenses. The actual return for an investor from a scheme is to be arrived at by deducting the TER from its total returns.įor example – Mr X invested INR 5,00,000 last year in XYZ Equity Fund. Total Expense Ratio = 1 Crore / 50 Crores Total expenses (administration, management fee etc) for managing the fund = INR 1 crore Total Expense Ratio = Total Fund Expenses / Assets Under Management (AUM) of the Fundįor example – XYZ Equity Fund has total Assets under Management of INR 50 crores. : Warren Buffett, Chairman, Berkshire Hathaway, 2017 – Shareholder Letter Both large and small investors should stick with low-cost index funds. When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the manager who reap outsized profits, not the clients. It is expressed as a factor of the fund’s net assets on a daily basis. It includes various charges like management fee, administrative cost, trading & brokerage and other operating expenses, audit fee, legal fee, sales & marketing expenses etc. Total Expense Ratio (TER) or Expense Ratio can be defined as an annual fee or charge that a mutual fund charges to the scheme and in turn, to its investors.
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