The TER expresses what percentage of a fund’s assets was needed to pay for the operating expenses and investment management fees of the portfolio over a specific period (e.g. a calendar year). Basically the TER provides a way to measure how costs affect a portfolio. Every fund incurs costs which means that a certain percentage of the portfolio’s assets need to be deducted to meet these costs. The following formula is used to calculate the TER of a fund:

Total Expense Ratio = (Investment management fees + Operating costs) / Net Asset Value