{"concept":{"id":25,"slug":"ter","term":"TER (Total Expense Ratio)","shortDefinition":"The total annual cost of maintaining an ETF or index fund, expressed as a percentage of the amount invested -- distinct from the broker's trading commission.","longDefinition":"TER (Total Expense Ratio) is the total annual cost of managing an ETF or index fund, expressed as a percentage of the amount invested -- it includes the management fee and other operating expenses of the vehicle itself. It's automatically deducted from the ETF's or fund's value each year, with no separate payment required from the investor, and it's distinct from the brokerage commission the broker charges per trade. Although it's usually expressed as a small percentage, its effect compounds year after year on the total capital invested, not only on the gain, so it can add up to a meaningful difference over long horizons."},"relations":{"requirement":[],"contrast":[],"related":[{"concept":{"id":23,"slug":"etf","term":"ETF","shortDefinition":"An exchange-traded fund that pools many assets into a single product, usually tracking an index -- bought and sold like a stock.","longDefinition":"An ETF (Exchange-Traded Fund) is an investment vehicle that pools many assets -- usually the same ones that make up a stock market index, in similar proportions -- into a single product. Instead of buying each asset separately, buying one share of an ETF gives you exposure to all of them at once. Unlike a traditional fund, an ETF trades on an exchange: it has a price that moves in real time during market hours, and it's bought and sold using the same order types as a stock, through a broker."}},{"concept":{"id":30,"slug":"management-fee","term":"Management fee","shortDefinition":"The fee a fund's management company charges for administering it -- the main component of its TER, especially under active management.","longDefinition":"The management fee is what a fund's management company charges for administering it -- for an actively managed fund in particular, it's the main component of its TER, the fund's total annual cost already covered in the previous module. An actively managed fund typically has a noticeably higher management fee than a passively managed fund or an ETF: that extra cost pays for the management team's work, but it reduces net return from day one, whether or not there's genuinely superior management to justify it. Its impact compounds every year on the total capital invested, just like the TER."}}],"calculatedBy":[]},"curricularPosition":[{"id":22,"moduleId":7,"slug":"what-is-ter-and-why-does-it-matter-long-term","title":"What is TER and why does it matter over the long term?","summary":"You understand what TER is and why a seemingly small difference in annual cost matters a lot over the long term.","bodyMarkdown":"## Objectives\n\nBy the end of this lesson you understand what TER is and why a seemingly small difference in annual cost matters a lot over the long term.\n\n## Content\n\nTER -- Total Expense Ratio -- is the total annual cost of managing an ETF or an index fund, expressed as a percentage of the amount invested. It includes the management fee and other operating expenses of the vehicle itself. It's important not to confuse it with the brokerage commission your broker charges per trade, already covered in an earlier module: the TER is charged by the ETF or fund itself, automatically deducted from its value each year, without you having to pay it as a separate trade.\n\nAlthough the TER is usually expressed as a small percentage -- many ETFs that track indices have a TER below 1% a year -- its effect compounds year after year on the total capital invested, not only on the gain obtained. Over long investment horizons, that effect can become significant.\n\nTwo ETFs that track exactly the same index can have different TERs. The difference between them isn't in what they track -- both pursue the same goal -- but in how much it costs to hold them. That cost difference silently reduces accumulated net return, without ever appearing as a visible trade in your account.\n\n## Example\n\nTwo ETFs that track the same index, one with a TER of 0.10% and another of 0.50%, held for many years, end up with a different final capital purely because of that annual cost difference -- even though both tracked the index with the same precision.\n\n## Common mistakes\n\n- Thinking a low TER, like 0.1% or 0.5%, is insignificant -- its effect compounds every year on the total capital, not just the gain, and can add up to a meaningful difference over long horizons.\n- Confusing the TER with the broker's brokerage commission -- the TER is charged by the ETF or fund itself, automatically deducted from its value; the brokerage commission is charged by the broker for each trade you send.\n\n## Summary\n\nTER is the annual cost of holding an ETF or index fund, expressed as a percentage of the amount invested. Even though it may look small, its effect compounds every year, and it can make a meaningful difference over the long term.\n\n## Self-check\n\nWhy can a TER of 0.1% make a meaningful difference over a horizon of many years?\n\nHow does the TER differ from the brokerage commission your broker charges?","bodyHtml":"

Objectives

\n

By the end of this lesson you understand what TER is and why a seemingly small difference in annual cost matters a lot over the long term.

\n

Content

\n

TER -- Total Expense Ratio -- is the total annual cost of managing an ETF or an index fund, expressed as a percentage of the amount invested. It includes the management fee and other operating expenses of the vehicle itself. It's important not to confuse it with the brokerage commission your broker charges per trade, already covered in an earlier module: the TER is charged by the ETF or fund itself, automatically deducted from its value each year, without you having to pay it as a separate trade.

\n

Although the TER is usually expressed as a small percentage -- many ETFs that track indices have a TER below 1% a year -- its effect compounds year after year on the total capital invested, not only on the gain obtained. Over long investment horizons, that effect can become significant.

\n

Two ETFs that track exactly the same index can have different TERs. The difference between them isn't in what they track -- both pursue the same goal -- but in how much it costs to hold them. That cost difference silently reduces accumulated net return, without ever appearing as a visible trade in your account.

\n

Example

\n

Two ETFs that track the same index, one with a TER of 0.10% and another of 0.50%, held for many years, end up with a different final capital purely because of that annual cost difference -- even though both tracked the index with the same precision.

\n

Common mistakes

\n\n

Summary

\n

TER is the annual cost of holding an ETF or index fund, expressed as a percentage of the amount invested. Even though it may look small, its effect compounds every year, and it can make a meaningful difference over the long term.

\n

Self-check

\n

Why can a TER of 0.1% make a meaningful difference over a horizon of many years?

\n

How does the TER differ from the brokerage commission your broker charges?

","sortOrder":3,"readingMinutes":6,"difficulty":"Básico","url":"/en/academy/fundamentals/etfs/what-is-ter-and-why-does-it-matter-long-term"}],"graphSummary":{"root":{"type":"concept","id":"25","depthFromRoot":0,"entity":{"type":"concept","slug":"ter","term":"TER (Total Expense Ratio)","excerpt":"Coste anual total de mantener un ETF o un fondo indexado, expresado como porcentaje del capital invertido -- distinto de la comisión de intermediación del bróker."}},"depth":1,"returnedNodes":1,"truncated":false,"hasCycle":false,"nodes":[{"type":"concept","id":"25","depthFromRoot":0,"entity":{"type":"concept","slug":"ter","term":"TER (Total Expense Ratio)","excerpt":"Coste anual total de mantener un ETF o un fondo indexado, expresado como porcentaje del capital invertido -- distinto de la comisión de intermediación del bróker."}}],"edges":[]},"relatedNews":[],"relatedEntities":[]}