The TER represents the amount of trading commissions incurred when the portfolio management team buys and sells equities (stocks) within a given fund. Already published in regulatory documents like the Management Report of Fund Performance, the TER is also disclosed in the Fund Facts document which is required to be provided at point of sale.
No, TERs typically only apply to funds that hold equities. Most fixed income funds do not have a TER because commissions for fixed income funds are already embedded in the price of a bond.
The TER is expressed as a percentage of total assets. This percentage is determined by taking the fund’s total trading commissions incurred over a reporting period divided by the fund’s total assets.
If a fund had $100 million in assets under management and the portfolio managers incurred trading commissions of $250,000 for a given year, then the funds TER would be calculated as:
For more information about the costs of investing in mutual funds, please speak with your advisor.
Trading activityTrading commissions can vary significantly from fund to fund and from year to year based on market conditions, the fund's investment strategy and asset class.
Fund flowsThe larger the fund’s inflows/outflows due to significant unit purchases or redemptions, the higher its TER will likely be.
LiquidityA security's liquidity is determined by the number of investors seeking to buy or sell it relative to how much is available. Less liquid securities can be more expensive to trade than more liquid ones.
Trading deskAn efficient trading desk can help reduce the total amount of trading commissions a fund pays.
Since trading commissions are only incurred on equities and not bonds, balanced funds will generally have lower TERs than equity funds. For example:
|RBC Bond Fund||1.11%||0.00%*|
|PH&N Monthly Income Fund||1.92%||0.08%|
|RBC Select Balanced Portfolio||1.94%||0.06%|
|RBC Global Equity Fund C$||2.06%||0.05%|
|RBC Emerging Markets Equity Fund C$||2.21%||0.10%|
|RBC Bond Fund||0.49%||0.00%*|
|PH&N Monthly Income Fund||0.82%||0.08%|
|RBC Balanced Fund||1.05%||0.06%|
|RBC Global Equity Fund||0.98%||0.05%|
|RBC Emerging Markets Equity Fund||0.99%||0.10%|
What’s most important to keep in mind is that the TER varies from fund to fund and generally funds with a higher TER reflect a higher level of trading activity. Working with an advisor can help you put this cost into context when evaluating a potential investment.
The table below provides a sample comparison between a fund’s MER and its TER. It’s important to bear in mind that the TER will vary from fund to fund and from year to year.
- TER only applies to mutual funds with equity holdings.
- TER is included in published fund performance: mutual fund performance is reported after both the MER and TER have been accounted for (the MER & TER are deducted from the fund prior to calculating and reporting the performance).
- TER may vary from year to year, as it is a reflection of the previous year’s trading activity within a fund.
- Generally, a fund with a higher TER reflects a higher level of trading activity in the fund’s portfolio.