ETF základy
What TER Means and How the Fee Quietly Eats into Your Returns
Key takeaways
- TER (Total Expense Ratio) is an annual fund fee automatically deducted from the fund's value — you don't pay it separately, but it indirectly reduces your returns.
- Global index ETFs have a TER of typically 0.07–0.25%; actively managed funds in the Czech Republic charge 1–2%.
- On a 20-year investment of CZK 1,000,000 with 7% gross annual return, the difference between 0.2% and 1.5% TER amounts to approximately CZK 800,000.
- TER does not include transaction costs when trading, the spread, or taxes — those come on top.
- Always compare TER, but also watch tracking difference, which shows the actual impact on your return.
TER (Total Expense Ratio) is the annual percentage that a fund automatically deducts from the value of its assets to cover management costs — you will never see it as a line item on a statement, but it constantly reduces your return.
What TER includes — and what it doesn't
TER covers: the management fee, depositary costs, auditors, regulatory fees, and marketing. It does not include transaction costs incurred by the fund when buying and selling securities within the portfolio, exchange spreads, or tax costs. TER is therefore the lower bound of actual costs — but for large passive ETFs, the gap is minimal.
How much does 1% a year actually move the needle?
Let's illustrate with an example. You invest CZK 1,000,000 for 20 years with a gross annual return of 7%:
- TER 0.20% (typical global index ETF): final value ~CZK 3,530,000
- TER 1.50% (typical active fund in the Czech Republic): final value ~CZK 2,750,000
A difference of roughly CZK 780,000 — purely because of the fee, without a single poor investment decision. That is the power of compound interest working against you.
How to find a specific ETF's TER
TER must be disclosed in the KIID (Key Investor Information Document), which every UCITS fund must publish. On provider websites (iShares, Vanguard, Xtrackers), you will find the TER on each fund's page. Comparison tools such as JustETF or ETF.com display TER in a clear table.
TER vs. tracking difference: which one to watch more closely?
TER is the declared cost, but tracking difference shows how much the fund actually lagged behind its index over a full year. Well-managed funds have a tracking difference lower than their TER, because they earn income from securities lending. The ideal ETF has a low TER and a low tracking difference.
This article is educational in nature and does not constitute investment advice.
FAQ
What is TER in simple terms?
An annual percentage fee that the fund automatically deducts from asset value. At a TER of 0.20%, you pay CZK 200 per year for every CZK 100,000 in your portfolio — without seeing it as an expense on a statement.
How does the TER of an ETF compare to that of a mutual fund?
Index ETFs typically have a TER of 0.07–0.25%. Actively managed mutual funds in the Czech Republic generally charge 1–2% per year. Over a 20-year investment horizon, the difference in the final portfolio amounts to hundreds of thousands to millions of Czech crowns.
Is a lower TER always better?
Generally yes, but also track tracking difference — the actual performance gap between the fund and its index. A fund with TER 0.20% and TD 0.30% is worse than one with TER 0.25% and TD 0.10%. Watch both numbers together.
Where do I find a fund's TER?
In the KIID (mandatory annex of every UCITS fund), on the provider's website, or on comparison platforms such as JustETF. Look for TER or OCF (Ongoing Charges Figure) — both convey the same information.