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When you invest in mutual funds, the focus is often on the potential returns, past performance, and market conditions. However, there is a crucial factor that many investors overlook — the total expense ratio (TER). This single figure can have a long-term effect on the growth of your investments, especially if you are looking to build wealth steadily. Understanding how TER works and why it matters can help you make more informed choices in 2025 and beyond.
What Is the Total Expense Ratio?
The total expense ratio represents the percentage of a mutual fund’s total assets that are used to cover its operating costs. These costs include fund management fees, administrative charges, audit fees, and other expenses related to running the fund. The TER is deducted from the fund’s assets, which means it reduces the overall returns you receive as an investor.
For example, if a mutual fund shows an annual return of 10% and the TER is 2%, your net return before tax will be approximately 8%. While this may not seem like a large difference in the short term, over several years, it can significantly impact your total earnings.
Why TER Matters More in 2025
In 2025, market conditions are increasingly competitive, and investment options are more varied than ever. With interest rates, inflation, and sector performance influencing returns, every fraction of a percentage in costs matters. Mutual funds with a higher TER must deliver proportionally better returns to justify their fees. If two funds perform similarly but one has a lower TER, the latter is likely to give you better value over the long term.
Moreover, as more investors seek transparency and cost efficiency, TER has become an important comparison point when deciding where to invest in mutual funds.
Components of the Total Expense Ratio
The TER is made up of several elements, each affecting the overall figure:
- Management Fees: Paid to the fund manager for making investment decisions.
- Administrative Costs: Cover record-keeping, compliance, and communication with investors.
- Marketing and Distribution Expenses: Charged for promoting the fund and acquiring investors.
- Audit and Legal Fees: Ensure the fund operates within regulations and is financially sound.
Each of these costs is proportionally deducted from the assets, which is why even a small increase in TER can influence long-term results.
How to Check the TER Before You Invest
When you invest in mutual funds, always review the fund’s factsheet or offer document. The TER will be clearly mentioned, usually as an annual percentage. Compare similar funds within the same category — for example, compare large-cap equity funds with each other — to see which offers a lower TER without compromising on quality.
Also, be cautious of funds with unusually low TERs. While cost efficiency is important, you must ensure the fund is managed effectively and has a strong track record.
Impact of TER on Long-Term Wealth
Consider two mutual funds, both delivering a gross return of 12% annually. Fund A has a TER of 1%, and Fund B has a TER of 2.5%. Over 15 years, the difference in final corpus can be substantial due to the compounding effect of costs. This is why a seemingly small percentage can result in a large gap in final outcomes.
Low TERs allow more of your money to stay invested and compound over time, which can make a significant difference to your financial goals.
How to Choose the Right Fund Based on TER
When assessing mutual funds, TER should be a deciding factor, but not the only one. Here is a practical approach:
- Compare TERs within the same category of funds.
- Look at past performance consistency over 5–10 years.
- Check the quality of the fund management team.
- Review the fund’s investment philosophy and risk level.
Balancing cost with performance will help you invest in mutual funds more effectively.
Conclusion
The total expense ratio may appear as a small number on paper, but it can make a notable difference to your long-term returns. By paying attention to TER and selecting funds that offer both value and performance, you can preserve more of your wealth over time. In 2025, informed investors are prioritising cost awareness alongside performance tracking.
If you want guidance in choosing cost-effective and well-managed funds, consulting a trusted investment solutions provider such as Torus Digital can help ensure your portfolio is both efficient and aligned with your goals.

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