What Is an Expense Ratio (TER)? What Fund Fees Really Cost You

What the expense ratio is

Every fund has running costs: the manager’s fee, administration, safekeeping of the assets, audit, and for a tracker fund the licence for its index. The expense ratio expresses those costs as a percentage of the money invested. In the US it is called the expense ratio; in Europe you will usually see the total expense ratio (TER) or the ongoing charges figure (OCF) in the fund’s key information document. A fund with a TER of 0.20% costs €2 a year for every €1,000 invested.

You never pay it directly. The fund deducts it a little at a time from its assets, so it is already reflected in the fund’s price and in its published returns. That makes it easy to forget, and that is exactly why it matters.

How much funds charge

According to Morningstar’s European Fund Fee Study 2025, the average ongoing charge at June 2025, weighted by the money invested in each fund, was:

• Active equity funds: 1.17% a year, down from 1.40% ten years earlier.
• Passive equity funds: 0.19%, down from 0.33%.
• Active bond funds: 0.68%.
• Passive bond funds: 0.15%.
• Active mixed-asset funds: 1.25%.

Averages hide wide differences. Broad index ETFs tracking world or US share markets often charge 0.25% a year or less, while some actively managed funds sold through banks still charge 1.5% or more. Fees also vary by country: Morningstar found that the UK has the lowest active fund fees in Europe and Italy the highest.

What a fee of 1% or more really costs

Fees compound against you in the same way returns compound for you. Take a hypothetical €10,000 invested for 30 years, growing at 6% a year before costs, in three funds that differ only in their fees:

• Fund charging 0.20% a year: about €54,300 after 30 years.
• Fund charging 1.00% a year: about €43,200.
• Fund charging 1.80% a year: about €34,400.

The fund charging 1.8% leaves you with about €20,000 less than the one charging 0.2% — twice your original investment, paid away in fees, and more than a third of what the cheaper fund delivers. Returns are uncertain; fees are not. You pay them in good years and bad, which is why the cost of a fund is one of the few things about your investments you can actually control. Our fee calculator lets you run the same comparison with your own numbers.

What the TER leaves out

• Trading costs inside the fund: buying and selling the underlying shares or bonds costs money, shown as a separate transaction cost figure in the key information document.
• Entry and exit charges: some funds sold through banks and advisers charge a fee when you buy or sell.
• Platform and broker fees: what your bank or broker charges to hold the fund, plus commissions and currency conversion when you trade.
• Advice fees, if you pay an adviser.
• Performance fees, which some active funds charge on top when they beat a target.

That is why the EU’s markets regulator, ESMA, looks at total costs. In its report on retail investment products published in January 2025, it found that, including entry and exit charges at their maximum levels, non-ETF equity funds cost about 2.1% a year in 2019–2023, against about 0.6% for equity ETFs. It also found that passive funds are on average 60% to 80% cheaper than active ones.

You cannot control what markets do. You can control what you pay.

How to check what you are paying

In the EU and the UK, every fund sold to retail investors must publish a key information document, which shows its ongoing costs, its transaction costs and an example of their effect over time. Look for the ongoing charge or TER, the transaction costs and any entry, exit or performance fees, then add what your bank or broker charges. If the total is above 1% a year, ask what you get in return, and compare it with a low-cost index fund or ETF that covers the same market.

Is a cheaper fund always better?

Not automatically. Two funds tracking the same index with charges of 0.07% and 0.12% are close enough that other details — which index they follow, how closely they track it, where they are domiciled and how they are taxed in your country — may matter more. But when the gap is between 0.2% and 1.5%, the expensive fund starts every year with a handicap it rarely overcomes: according to S&P Dow Jones Indices, 97% of active Europe equity funds sold in euros lagged their benchmark over the ten years to 2025. This guide is general education, not personal financial advice.

This article is educational and general in nature. It isn’t personalized investment, tax, or legal advice — always weigh your own circumstances, or talk to a licensed professional, before making financial decisions.

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