You are looking at two ETFs that track the S&P 500.
The difference is that one charges a TER of 0.07% and the other charges 0.20%.
You want to know what that number means, how it actually leaves your account, and whether the gap matters. This article covers all of that, including the part TER does not tell you.
Table of contents
- What TER is and how it works
- What TER covers
- What TER does not cover
- How TER compounds over time
- TER vs OCF
- Where to find TER
- Common questions
- About Paasa
What TER is and how it works
TER stands for Total Expense Ratio. It is the annual cost of owning a fund, expressed as a percentage of the amount you have invested.
A TER of 0.07% means you pay 0.07 USD per year for every 100 USD you hold in the fund.
It is not collected as a separate fee or deducted from your brokerage account. It is pulled directly from the fund's Net Asset Value (NAV).
If the index the fund tracks gained exactly 10% in a year and the fund's TER is 0.07%, the fund would return approximately 9.93%. You will never see a line item for this deduction. It simply shows up as a slightly lower NAV compared to the index.
This matters because many investors assume costs are things they can see. TER is a cost you never see. It compounds quietly against you every year you hold the fund.
What TER covers
For an ETF, the TER bundles several costs the fund manager incurs to run the fund:
- Management fee: The largest component. Paid to the fund manager for running the investment strategy (for passive index ETFs, this mostly means maintaining the portfolio to track the index).
- Administration costs: Back-office operations, recordkeeping, and reporting.
- Custodian fees: Charged by the bank or institution that physically holds the fund's assets.
- Legal and audit fees: Required for regulatory compliance and annual financial reporting.
- Regulatory filing costs: Funds are required to produce prospectuses, factsheets, and regulatory disclosures. These have costs.
For a passive index ETF, there is no analyst research, no active portfolio management, and no performance bonus to pay for.
That is the structural reason index-tracking ETFs have TERs between 0.05% and 0.25%, while actively managed funds charge more.
What TER does not cover
TER often gives investors a partial picture about the total costs. Here are the things it does not cover.
Brokerage commission
What you pay your platform each time you buy or sell. This depends entirely on your broker, not the fund.
Tracking difference
TER tells you what the fund charges. It does not tell you how closely the fund actually tracked its index after all real-world costs and income are accounted for. A fund with a TER of 0.07% could underperform its index by 0.15%, or outperform it entirely, depending on how it manages rebalancing and securities lending.
Bid-ask spread
The gap between the buying price and selling price of the ETF on the exchange. A large, liquid ETF like VOO or CSPX has a very tight spread. Less-traded ETFs have wider ones. Neither is reflected in TER.
Transaction costs inside the fund
When the fund rebalances to match its index, or when investors buy and sell creating inflows and outflows, the fund incurs trading costs internally. These are partially captured in some TER calculations but not always fully.
Securities lending income
Some ETFs lend their holdings to short sellers and earn a fee in return. This income is returned to the fund and can bring your effective annual cost below the stated TER. A fund with a TER of 0.07% that earns 0.02% from securities lending effectively costs you 0.05%, though TER will still read 0.07%.
The practical implication: TER tells you how much the fund company charges annually to run the fund. It does not tell you how closely the fund actually tracked its index after all real-world costs and income. That figure, tracking difference, is a more complete measure and is covered separately in the next article in this series.
How TER compounds over time
Suppose you are a salaried professional in Bengaluru who has invested ₹10 lakh in an S&P 500 ETF, targeting a 10% gross annual return over 10 years. Here is how the same broad index exposure looks across three different cost structures.
| VOO (US ETF) | CSPX (UCITS ETF) | Mirae Asset S&P 500 Top 50 ETF | |
|---|---|---|---|
| TER | 0.03% | 0.07% | 0.60% |
| Effective annual return | 9.97% | 9.93% | 9.40% |
| Value after Year 1 | ₹10,99,700 | ₹10,99,300 | ₹10,94,000 |
| Value after Year 5 | ₹16,10,000 | ₹16,05,000 | ₹15,66,000 |
| Value after Year 10 | ₹25,91,000 | ₹25,77,000 | ₹24,53,000 |
The gap between VOO and CSPX is roughly ₹14,000 over 10 years. Both are competitive, the choice between them comes down to which markets you can access.
The gap between either of those and the Mirae ETF is around ₹1.25 lakh on the same ₹10 lakh, purely from cost. The underlying index performance is identical in all three cases.
Note: These figures are illustrative and assume a constant 10% gross return each year. The numbers are meant to show direction, not precision: cost drag compounds in the same direction as return compounding, just against you.
TER vs OCF: are these the same thing?
Almost always, yes.
For UCITS funds specifically, the official regulatory term is OCF (Ongoing Charges Figure). This is the number that appears in the fund's KIID (Key Investor Information Document), which is the standardised regulatory disclosure document every UCITS fund must publish.
TER is the older, broader industry term. Some definitions of TER include costs that OCF excludes, but in practice, when you see either number on a fund factsheet or an ETF data site like JustETF, they are measuring the same thing and the two terms are used interchangeably.
If you are ever reading the official fund documents and looking for the cost figure, look for OCF. If you are comparing funds on a third-party site, you will usually see TER. They point to the same number.
Where to find TER
- The fund's KIID or KID document: The most accurate and legally required source.
- The ETF provider's website: iShares (BlackRock), Vanguard, Amundi, Xtrackers, and others list TER prominently on each fund's product page.
- JustETF: A comprehensive UCITS ETF database. Useful for side-by-side comparisons across providers.
- Your brokerage platform: Most brokerages list TER on the ETF product page, though accuracy varies.
Common questions
How is TER charged?
It is deducted from the fund's NAV automatically. You will never see it as a transaction or a debit. The only place it shows up is in the difference between what the index returned and what the fund returned over any given period.
Does a lower TER always mean a better fund?
Not automatically. A fund with a slightly higher TER could have a lower tracking difference if it manages rebalancing efficiently and earns meaningfully from securities lending. TER is the starting point for cost comparison, not the ending point. Use tracking difference for the full picture.
Can TER change over time?
Yes, though changes are uncommon and fund managers must notify investors in advance. Large ETFs with growing AUM tend to lower their TERs over time as fixed operating costs are spread over a larger asset base. This is one reason investors favour ETFs with high AUM: lower costs tend to follow scale.
About Paasa
Paasa is a global investing platform built for Indian investors. We provide direct access to UCITS ETFs listed on the London Stock Exchange, Euronext, and Xetra, alongside equities across 10+ global exchanges including the US, UK, Germany, Switzerland, Japan, Hong Kong, and Singapore.
For Indian investors buying ETFs through Paasa, the India-specific layer is handled end to end:
- Schedule FA reporting: We generate the exact foreign asset disclosure reports your CA needs for your Indian tax return, mapped to the Indian financial year.
- LRS and FEMA support: We handle remittance coordination and ensure your overseas investments stay within the RBI's Liberalised Remittance Scheme limits.
- Tax filing and advisory: Access to expert tax advice on capital gains, dividend income, and cost basis calculations for foreign holdings.
