Difference Between AMC and TER (With Table)

The concept of stockholding and investments offers comprehensive wealth management and financial advisory services which helps one to make intelligent decisions for their financial planning. AMC and TER are related abbreviations for Stocks and Investments. In both cases, AMC and TER, there are several more fees levied to investors and shareholders. Both abbreviations have their distinct characteristics. It refers to the costs, which include stock charges, expenditures, pension charges, and so forth.

AMC vs TER

The major difference between AMC and TER is that the AMC is a minor component of the overall fees and charges and a drop in the bucket compared to what shareholders have to contribute, whereas TER provides a comprehensive view of a fund’s performance and profitability.

Difference Between AMC and TER

One of the aspects of a mutual fund’s overall costs is the yearly management fee. The AMC is a fee charged by a commercial bank or its agents who handle individual investors’ investment accounts. An investment manager, stockbroker, or wealth manager is generally the one who collects this fee. The yearly management charge typically ranges from.5% to 1.5 percent, depending on the amount of the asset and the quality or value of the advice provided to the client.

When comparing funds, the TER is the expenditure to keep an eye on. It’s an FSA-approved1 metric that provides a more realistic view of the yearly operational expenditures that stifle your investment’s performance. The lower the TER, the better, albeit a TER of 0.27 percent on a UK equities tracker fund is hard to match whereas, on a similar fund, a TER of 1% is like daylight theft with added kicks.

The TER associated with a more actively managed fund is greater. An automated or passive fund, on the other hand, has much reduced operating expenses, which translates to a lower TER.

Comparison Table Between AMC and TER

Parameters                                         AMC                                           TER
DefinitionAMC refers to the fees charged to investors for managing their assets and stock holdings. The TER is the ratio that is used to compute total costing expenditure.
Abbreviation Annual Management Charge. Total Expense Ratio.
Charging DurationAlthough AMC is invested monthly, it is computed yearly.TER refers to the expenses that are determined annually after all costs have been accounted for.
Charge RateSpecific fixed charge.Depends upon the total expenses and hence varies depending upon the time.
PublishmentAMC is sometimes referred to as an investment obligation, and as such, it is recorded in the books.TER is never included in any type of record, such as bank statements or receipts.
ImportanceAMC is one of the minutest parts of an investment.TER is a crucial part of an investment.
CalculationAMC is calculated by multiplying the percent with the total assets divided by value.TER is calculated by dividing the total cost by the total assets of a year.

What is AMC?

AMC stands for Annual Management Charges. It is the maintenance charge that an investor has to pay for his investments and stock holdings. Every month, a sum of money is contributed to the individual’s financing, and it is later included in the Total Expense Ratio at the end of the year. The AMC is a mandatory charge that must be paid. It is paid to the institution as well as the individual who orchestrated the scam as the funds’ broker. In addition, AMC is a crucial component of TER.

It’s crucial to keep track of every element of the investor’s investment. As a result, AMC has a specified fixed fee. As an AMC, there are no extra costs that may be deducted or added, and it has a set rate. AMC is sometimes referred to as an investment obligation, and as such, it is recorded in the books.

Although that AMC is one of the tiniest components of investment. But, simultaneously time, it is a mandatory cost that must be paid. A particular formula can also be used to compute one’s AMC fee. AMC can simply be calculated by multiplying the percent with the total assets/value.

What is TER?

TER stands for Total Expenditure Ratio. The total expenditure ratio (TER) indicates the running costs of a mutual fund concerning its assets. It’s a metric for how efficient a fund’s operations are. After costs are taken into account, investors look at the expense ratio to decide if a fund is a good fit for them. The “net expense ratio” or “after reimbursement expense ratio” is another name for TER.

The various operating expenses included in TER are:

  • Annual management charge
  • Legal fees
  • Administrative fees
  • Audit fees
  • Marketing fees
  • Directors’ fees
  • Regulatory fees

The TER is designed to reflect all of the costs associated with holding an investment fund. However, some charges, particularly those that are made just once or with investment funds, may be excluded from the TER. Commissions, brokerage fees, securities transfer tax, and yearly advisor fees are among them.

The TER is easily computed by dividing the total cost by the total assets for a given year.

Main Difference Between AMC and TER

  1. AMC refers to the fees charged to investors for managing their assets and stock holdings. TER, on the other hand, is the ratio that is used to compute total cost expense.
  2. The acronym AMC stands for Annual Management Charge. The acronym TER, on the other hand, stands for Total Expense Ratio.
  3. Although AMC is invested monthly, it is computed yearly. TER, on either hand, refers to the expenses that are determined annually after all costs have been accounted for.
  4. The organization or the persons that manage the investments charge the AMC. TER, on the other hand, is a cost that is imposed on investors yearly.
  5. AMC is in charge of a crucial aspect of TER. TER, on the other hand, is just a measurement and hence a significant component of investment spending.
  6. The AMC is a fee that is paid to administer the TER as well as other costs. TER, but on the other hand, is the overall ratio determined from all of the annual charges combined.
  7. AMC is subject to a set fee. The TER ratio, on the other hand, is determined by the overall costs. As a result, it fluctuates over time.
  8. AMC is sometimes referred to as an investment obligation, and as such, it is recorded in the books. TER, on the other hand, is never included in any type of record, such as statements or receipts.
  9. AMC is one of the tiniest components in a portfolio. TER, on the other hand, is a critical component of every investment.
  10. The AMC is easily computed by multiplying the percent by the total assets/value. TER, on the other hand, is easily computed by dividing a year’s total cost by its entire assets.

Conclusion

These two acronyms are frequently used in mutual funds and are always regarded as key components of investing. Investors prefer the total expense ratio over the yearly management fee because it is a more accurate figure.

When compared to the other types, the overall expenditure ratio provides a more complete view, and the AMC is only one component of the total expenses. Unlike the yearly management fee, the total expense ratio is not disclosed in any statement or record.

They both use distinct ways of calculating. The AMC has a set rate, but the TER has no set rate and changes based on the investment and the investor.

The TER is a mechanism for covering the yearly operating costs of a certain fund. It combines all known expenses related to the fund’s operation into a single number, usually expressed as a percentage, and derives its base from the fund’s assets. This implies that the amount delivered as the TER is contingent on the fund’s performance.

References

  1. https://www.theia.org/sites/default/files/2019-05/20120504-imastatisticsseriespaper3.pdf
  2. https://ieeexplore.ieee.org/abstract/document/1638788/
  3. https://apps.dtic.mil/sti/citations/ADA197926