When you are investing in a mutual fund you might have come across the term total expense ratio (TER). So what is a TER and how is it calcuated. Let's check out.

The total expense ratio is simply the expense an investor pays to the asset management committee for running a mutual fund. 

How Expense Ratio is deducted?

Now how do they charge the TER while you invest. An investor normally does not pay any fees for investing in the mutual fund. The expense ratio is deducted daily from your investments. For example if an investor is putting ₹10,000 in a mutual fund with an expense ratio of 1%, then the total expense for a single day will come to ₹3.42.

The formula for determining expense for a single day is (total expense ratio)* investment amount / 365.

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Because of the expense ratio, it is important for investors to select mutual funds with lower expense ratio to get higher returns as higher TER will eat into their earnings.

How To Save On Expense Ratio

Investors can save mutual fund expenses by opting for direct mutual funds. There are direct and regular mutual fund plans which are available to invest. Direct mutual funds are sold directly by Asset management companies hence they have lesser expenses. Regular mutual funds are being distributed by distributors or banks and hence they carry extra expense for it. 

In a nutshell, investors should look to invest in mutual funds direct plans with which has the lower expense ratio. 

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