TER Is Just the Tip of the Iceberg ๐ฏ
The Total Expense Ratio (TER) is often the primary metric used for comparing investment funds. Itโs standard, regulated, and widely published. But hereโs the reality:
๐ TER does not reflect the full cost of owning a fund.
Whatโs included:
- โ Management fees
- โ Administration and custody
- โ Distribution overhead (e.g. platform/trailer fees)
Whatโs missing:
- โ Transaction costs (implicit + explicit)
- โ Performance fees
- โ Swing pricing effects (NAV protection during large flows)
- โ Entry and exit fees
- โ Look-through costs in fund-of-funds (FoFs)
In other words, TER is a starting point, not the destination. The real cost drag is often 1.5โ2 times higher than TER, depending on the structure, turnover, and fee layers.
Want the truth? Look here:
- ๐ PRIIPs KID โ focus on Reduction in Yield (RIY)
- ๐ MiFID II cost breakdowns โ ex-post trading and incidental fees
- ๐ Turnover ratio โ a hidden proxy for internal cost friction
- ๐ Ask for synthetic TER or effective OCF, especially in FoFs or structured UCITS
โ Final Note: If a fund consistently outperforms a benchmark that matters to you, net of fees, cost becomes secondary.
๐ฌ In the end, itโs not about the cheapestโitโs about the best risk-adjusted value.
Source: LinkedIn
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