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Total Expense Ratio (Fund)

The total expense ratio is the annual ratio of all expenses charged to a fund, management fee included, to the fund’s total value; the CMB sets a cap for each fund type. Under the CMB’s Communiqué on Principles Regarding Investment Funds (III-52.1), the total of all expenses listed in the prospectus may not exceed the maximum rates set by fund type in the annex to the communiqué.
Contents
  1. 1.Key points
  2. 2.Formula / calculation
  3. 3.Worked example
  4. 4.Interpretation
  5. 5.Pitfalls
  6. 6.Official sources
  7. 7.Frequently asked questions

Key Points

  • Items such as the management fee, custody fee, brokerage commissions, audit fee and the Board fee are included.
  • The ratio shows the share of gross portfolio return an investor gives up each year.
  • the management fee is only part of total expenses, so looking at it alone understates cost.

Formula / Calculation

Total expense ratio = Total expenses charged to the fund in the period / Average total fund value in the period. The founder checks the cap at the end of each 3, 6, 9 and 12-month period; under the CMB guideline any excess is refunded to the fund within 5 business days after the period end, and the founder and the custodian are responsible for it.

Worked Example

Illustrative

If a fund with an average total value of TRY 200,000,000 over the year incurs TRY 5,000,000 of expenses, its total expense ratio is 5,000,000 / 200,000,000 = 2.5%. If the portfolio earned 30% before costs, the investor’s return is about 27.5%.

The figures are hypothetical values chosen to explain the concept; they are not data for any real fund, stock or market.

Interpretation

The ratio shows the share of gross portfolio return an investor gives up each year. Between two funds with similar strategies, the one with the lower expense ratio delivers a higher net return for the same gross performance. For pension investment funds a similar cap is regulated separately as the “total expense deduction”.

Pitfalls

the management fee is only part of total expenses, so looking at it alone understates cost. Entry and exit fees charged directly to investors are not part of the ratio. In funds of funds the target funds’ expenses are also reflected in their unit prices.

Official Sources

Official regulation and sources the definition is based on.

Pages Where This Term Appears

Related Terms

Frequently Asked Questions

The total expense ratio is the annual ratio of all expenses charged to a fund, management fee included, to the fund’s total value; the CMB sets a cap for each fund type.

Total expense ratio = Total expenses charged to the fund in the period / Average total fund value in the period. The founder checks the cap at the end of each 3, 6, 9 and 12-month period; under the CMB guideline any excess is refunded to the fund within 5 business days after the period end, and the founder and the custodian are responsible for it.

Prepared by: Yatırımcı.AI Research TeamLast reviewed: Method: MethodologyEditorial policy