What is the TER? (Trading Expense Ratio)
While the MER (Management Expense Ratio) for a mutual fund is a measure of a funds combined managerial and operational costs, the TER (Trading Expense Ratio) is a measure of the funds trading costs only.
Why have a separate ratio? Why not combine them? Many investors and financial advisors feel it would be simpler just to include the trading costs inside the MER but for regulatory reasons it is required to be reported separately. This is why you will note it listed on your fund facts documents alongside the MER.
What are the trading expenses? It is the brokerage expenses the fund manager occurs when making the stock and bond trades for the fund. It is very typical for a TER to lower for a fund with a large cap, buy and hold philosophy or an index fund. Similarly you would anticipate a higher TER if you choose to purchase a small cap trading fund with a mandate for higher turnover within the fund.
If you were to compare TER’s from one fund to another, it is important to compare funds with similar mandates. This way you would know you are comparing apples to apples.
The TER is backward looking and acts as a report to investors to let them know what the trading fees were for the fund in a previous 6 month or 12 month timeframe expressed as a percentage of total assets in the fund.
To see what the TER is on any of the funds you own you would look at the fund facts (you can google them) and you will see the MER and TER listed.
For general reference and understanding you may wish to reference the fund facts for two funds we use in our practice as an example to demonstrate how these fees are reported. *Please note these numbers listed below are from the Fund Facts documents dated July 2014, the most recent for the purposes of this post.
Under fund expenses, you will see the TD Monthly Income Fund Lists the MER as 1.47% and the TER as 0.01% for total fund expenses of 1.48%.
You will see the CI Signature Global Income and Growth Fund lists the MER as 2.44% and the TER as 0.15% for total fund expenses of 2.59%.
*Fund Fact documents above are linked for your reference and for context only to support this blog post. Please keep in mind these fund facts documents are updated on a regular basis by the fund companies and these ones attached reflect the current point in time. Also please consider these are only two funds among thousands in Canada being used here for reference only.