# Total Expenses: Ratio & Formula

Coming up next: What is a Fiscal Year? - Definition & Example

### You're on a roll. Keep up the good work!

Replay
Your next lesson will play in 10 seconds
• 0:00 Total Expenses Ratio Defined
• 1:38 Total Fund Costs
• 2:30 Total Fund Assets
• 2:47 Interpreting the TER
• 3:30 Lesson Summary
Save Save

Want to watch this again later?

Timeline
Autoplay
Autoplay
Speed

#### Recommended Lessons and Courses for You

Lesson Transcript
Instructor: Rodney Michael

Rodney has taught university accounting classes and has a doctorate in accounting.

In this lesson, you will learn about the total expenses ratio (TER). We will define the variables used in the calculation, and we will look at how the ratio is used.

## Total Expenses Ratio Defined

This lesson is about a ratio. Although calculating a ratio is usually easy, interpreting a ratio is not as simple as it might appear. For example, suppose that Bob spends 10% of his income on groceries, and Sally spends 2% of her income. We could express this as the groceries to income ratio. The calculation was certainly simple, but what if we want to know who eats better? We'll get back to Bob and Sally later, but first let's look at the total expenses ratio (TER).

The TER represents the percentage of annual expenses paid by the investors in a mutual fund. Since the fund is professionally managed, the expenses would include the fees charged by the managers as well as other operating costs. As a reminder, a mutual fund uses the money from a large number of small investors to buy securities, including stocks and bonds. When you put money into the fund, you become a part owner of the overall investment. Your investment earns a return, and you can invest more or sell your investment whenever you choose. In simple terms, your investment is increased by the earnings of the fund and decreased by the expenses of the fund.

The TER is used to provide investors with information about the amount of the expenses relative to the value of the assets in the fund. This percentage can be used by investors to compare different investment options. The calculation for the total expenses ratio is equal to total fund cost divided by total fund assets.

Let's take a closer look at the components of the ratio.

## Total Fund Costs

The total expenses of a fund include many different types of costs. The largest and most easily understood is the annual management charge (AMC) imposed by managers of the fund. Normally, this includes research costs, wages, and other costs involved in the management of the fund.

To unlock this lesson you must be a Study.com Member.

### Register to view this lesson

Are you a student or a teacher?

#### See for yourself why 30 million people use Study.com

##### Become a Study.com member and start learning now.
Back
What teachers are saying about Study.com

### Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.