Monday, May 29

Fund costs: The most important fees for funds and ETFs at a glance

TER: Total Expense Ratio

The following cost components are taken into account in the key figure TER (Total Expense Ratio):

The management fee

The fund management of a fund calculates a fee for its work. This fee is called an administration or management fee and covers all costs for fund management and research. The fund company’s profit margin is also included in the management fee. The fee differs from fund to fund. A fixed percentage of the fund volume is often calculated as a management fee. For actively managed equity funds, the costs average 1.5% to sometimes over 2.5%. Inexpensive index funds and ETFs (Exchange Traded Funds), which do not use active management, charge zero to one percent per year.

custodian fee

If fund managers buy securities for the fund, these securities must be invested in a separate account. Since fund companies are not allowed to take over the custody account management themselves for regulatory reasons, a custodian bank must be commissioned for this. Custodian banks generally charge 0.1% to 0.3% of the fund assets per year for the custody of the securities portfolio belonging to the fund assets, the daily calculation of the unit prices and the issue and redemption of investment units. Important: The custodian bank fees are not to be confused with the custody account fees that a bank charges private investors for managing their respective securities account.

Other operating costs

In the TER, the term “other operating costs” summarizes costs that are incurred for the distribution and administration of a fund. These include the costs for the production of fund prospectuses and brochures, for auditors and reports, but also for advertising. When fund companies place advertisements or TV spots, sponsor events or send out advertising brochures, the investors who have already paid into the fund pay the costs. A fund that does a lot of advertising also drives up costs and thus reduces returns. Depending on the fund, operating costs can account for up to 0.3% of the fund volume.

What is not included in the calculation of the TER?

Unfortunately, the T for “Total” in the abbreviation TER is not quite correct. This is because not all costs incurred when investing in this fund are included in the TER. There are other fees that investors must pay that are not included in the calculation of the TER. For example, the issue surcharge, transaction costs, performance-related fees and fees for target funds, such as those incurred in funds of funds. A TER comparison of different funds is therefore certainly helpful and a good first indicator, but it does not go far enough overall.