Two ETFs may track the same index and hold many of the same companies, yet deliver different outcomes over a long investment period. Costs are one reason. A fraction of a percent charged each year may seem minor in isolation, though recurring fees accumulate over time.
The total expense ratio (TER) provides a starting point for assessing those expenses. Expressed as a percentage of fund assets, TER reflects annual running costs without capturing every charge an investor may face.
This guide explains how TER works, which expenses sit outside it, how cost levels vary across different types of ETFs, and how small differences in annual fees may shape long-term results. Fees are also among the factors visible before investing, making them an important part of any fund comparison.
Questions to ask about ETF costs
→ What is an ETF, and what does owning one cost?
→ How do ETF costs compare with index fund costs?
→ Are ETFs cheaper to hold than mutual funds?
→ Does the total expense ratio affect returns over a long investment period?
→ Which ETF costs sit outside the TER, including spreads and platform charges?
Disclaimer
This is a marketing communication and in no way should be viewed as investment research, investment advice, or recommendation to invest. The value of your investment can go up as well as down. Past performance of financial instruments does not guarantee future returns. Investing in financial instruments involves risk; before investing, consider your knowledge, experience, financial situation, and investment objectives.
In this guide to ETF costs
- Total expense ratio meaning
- Costs the TER includes and leaves out
- The long-term impact of ETF costs
- Ways to keep ETF costs low
- ETF costs on Mintos
Total expense ratio meaning
The total expense ratio (TER) is the annual ongoing cost of operating an investment fund, expressed as a percentage of its assets. Rather than being billed separately, this cost is accounted for within the ETF and reflected in its value and performance over time.
For illustration, the figures below show how a 0.20% TER translates into annual costs at different investment amounts.
Amount invested | TER | Approximate annual cost |
€1,000 | 0.20% | €2 |
€10,000 | 0.20% | €20 |
€50,000 | 0.20% | €100 |
€100,000 | 0.20% | €200 |
In practice, TER reflects the recurring cost of running the fund, rather than a fee charged separately once a year. Management and administration are typically included, although the exact cost structure varies between ETFs. The Key Information Document (KID) and other fund disclosures provide the details for each product.
A lower TER means less is absorbed by ongoing fund costs, though it does not indicate lower risk or stronger future performance. The ETF’s holdings, diversification, market exposure, and tracking also shape the overall investment outcome.
TER and tracking difference are not the same
For example, an ETF with a TER of 0.15% will not necessarily underperform its index by exactly 0.15%. Taxes, portfolio construction, trading efficiency, securities lending, and other factors could also affect the return relative to the benchmark.
The resulting gap between an ETF’s performance and its index is known as the tracking difference. For 2 ETFs following the same index, this could help show whether a lower TER is also translating into closer index tracking.
Costs the TER includes and leaves out
The total expense ratio covers the recurring costs of running an ETF, but it does not represent every expense linked to owning one. Charges connected with buying, holding, or selling the investment may sit outside the fund-level fee.
Typical costs included in TER might cover:
- Fund management
- Administration
- Legal and accounting expenses
- Other operating costs disclosed by the fund
Other expenses may arise separately.
Trading spread
ETFs trade with a bid price and an ask price. The difference between them is the bid-ask spread, which affects the price paid when buying and the amount received when selling.
For illustration, an ETF quoted at €99.95 to buy and €99.85 to sell has a €0.10 spread. This does not appear as a separate fee, although it still affects the transaction cost.
Spreads vary between ETFs and could change with liquidity, market conditions, the underlying assets, and trading activity.
Platform and transaction fees
A broker or investment platform may charge separately for services such as buying, selling, custody, account administration, or currency conversion. These costs are not part of the ETF provider’s TER.
As a result, 2 investors holding the same ETF may face different overall costs depending on the platform they use and how frequently they trade.
A good total expense ratio for an ETF
There is no single figure that defines a good total expense ratio, because costs vary with the type of ETF and the strategy behind it. Broad passive funds tend to charge less than actively managed ETFs, while more specialized exposure may come with a different cost structure.
The more useful comparison is between ETFs offering similar exposure. Among funds tracking the same or a closely related index, a lower TER means less goes toward recurring fund charges.
TER does not settle the comparison on its own. Tracking difference shows how closely an ETF has followed its benchmark after fund-level costs and other factors, while liquidity and trading spreads could affect the overall cost of investing.
A lower TER does not guarantee stronger returns or indicate whether an ETF is suitable for a particular investor.
The long-term impact of ETF costs
Small differences in annual fees could become more noticeable over longer holding periods because costs reduce the amount that remains invested and available to compound.
The example below is hypothetical and for illustrative purposes only. It assumes 2 ETFs start with €10,000, earn the same constant 7% annual return before fund costs, and differ only in TER. Real market returns are not constant, and actual fees, taxes, trading costs, tracking, and performance may vary. The figures do not represent the past or future performance of any ETF, returns are not guaranteed, and capital is at risk.
ETF A | ETF B | |
Starting investment | €10,000 | €10,000 |
Assumed annual return before TER | 7% | 7% |
TER | 0.20% | 0.60% |
Simplified annual return after TER | 6.80% | 6.40% |
Approximate value after 30 years | €72,000 | €64,300 |
Under these assumptions, the difference after 30 years is about €7,700.
Each year, costs leave slightly less capital invested, which also reduces the amount available to generate returns in later periods. Over a few years, the effect may be modest. Over several decades, the same recurring difference has more time to accumulate.
This does not mean the ETF with the lower TER will deliver the higher return in practice. Market performance, tracking difference, portfolio construction, taxes, and other factors could all affect the final outcome.
Total expense ratio in mutual funds and ETFs
The total expense ratio in mutual funds often differs from ETF costs, particularly where active management is involved. Actively managed funds typically require ongoing research, portfolio selection, and trading, which could contribute to higher running costs.
Some mutual funds may also apply subscription, redemption, or distribution charges outside their ongoing costs. ETFs have a different trading-cost structure, where the bid-ask spread and any broker commission may apply when units are bought or sold.
This does not mean every ETF costs less than every mutual fund. Passive mutual funds could also carry relatively low fees, while specialist or actively managed ETFs may charge more. Strategy, management style, and the individual product matter more than the label alone.
Ways to keep ETF costs low
Reducing ETF costs starts with comparing funds that offer similar exposure. Once the investment objective, index, and structure are broadly aligned, differences in TER, spreads, and platform charges become easier to assess:
- Comparing TERs within the same index shows how recurring fund costs differ between ETFs offering similar exposure, alongside factors such as tracking difference and fund size.
- Checking the bid-ask spread adds the cost of entering or exiting a position to the comparison, with more liquid ETFs generally tending to trade on narrower spreads.
- Reviewing platform fees helps identify separate charges for dealing, custody, account administration, or currency conversion.
- Limiting unnecessary trades could reduce repeated exposure to spreads and any commission charged each time an ETF is bought or sold.
Trading frequency matters because even a low-TER ETF could become more expensive to own if transaction costs are incurred repeatedly.
For illustration, a €1 commission on a €20 order represents 5% of the amount invested before any market movement. The same charge represents 0.1% of a €1,000 order.
A practical comparison usually comes down to 3 questions:
- What is the ETF’s annual TER?
- What does it cost to buy or sell?
- Are there separate platform, custody, or currency conversion fees?
Costs should still be considered alongside the ETF’s holdings, diversification, liquidity, and risk profile. A cheaper fund is not automatically more suitable, and lower fees do not guarantee stronger returns.
ETF costs on Mintos
Mintos (AS Mintos Marketplace) is an investment platform licensed by Latvijas Banka that lets you invest in ETFs popular with European investors, your way.¹
Commission-free ETF investing means €0 Mintos fees to buy, hold, or sell, whether investing in individual ETFs or through the Core ETFs portfolio. Each ETF still carries its own total expense ratio (TER), charged by the ETF provider and reflected in the ETF price. Other trading costs, such as the bid-ask spread, may also apply.
For the exact TER and other charges of each ETF, check its KID and costs-and-charges (ex-ante) disclosure on the platform before investing.
Individual ETFs
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Core ETFs portfolio
An automated ETF portfolio matched to your risk level, from €50. The Core ETFs portfolio builds a globally diversified mix of stock and bond ETFs, automatically rebalanced and reinvested so you do not need to manage it yourself.
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As with any investment, the value of ETFs can go down as well as up, and you may receive back less than you invested.
¹ Based on frequently searched ETFs among European investors on justETF.com.
² ETF providers shown for illustrative purposes only. This does not constitute a recommendation or investment advice.
³ Each ETF carries its own annual fee (Total Expense Ratio) charged by the ETF provider, built into the ETF price.
Developed by the Mintos Content Team, making investment knowledge accessible for everyday investors across Europe.
Frequently asked questions
What is the total expense ratio?
The total expense ratio (TER) is the annual cost of owning a fund, shown as a percentage and deducted automatically from the fund’s assets.
What is a good total expense ratio?
There is no single figure that applies to every ETF. Costs vary by strategy, asset class, and management style, so TER is most useful when comparing funds with similar exposure and objectives.
What does the TER include?
TER generally covers recurring fund operating expenses such as management and administration. Trading spreads, broker commissions, platform fees, and currency conversion costs may sit outside the figure.
When is the total expense ratio deducted?
The total expense ratio is generally not billed separately. The provider takes it gradually from the fund’s assets throughout the year, and the ETF’s price already reflects it.
Is the TER the same for ETFs and mutual funds?
TER can be used to compare the ongoing costs of ETFs and mutual funds, but the figure depends more on the fund’s strategy and management style than on the label alone. Passive funds tend to have lower ongoing costs than actively managed funds, which typically involve additional research, portfolio selection, and trading.
How much do ETF fees affect returns?
Recurring fees reduce the amount that remains invested and available to compound. Over a long holding period, even relatively small differences in annual costs may contribute to different outcomes. Actual returns remain uncertain and can be negative.
