Difference Between AMC and TER (With Table)

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

AMC vs TER

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

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 the one who collects this fee. The yearly management charge ranges from 5% to 1.5%, 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 watch. It’s an FSA-approved 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. On the other hand, an automated or passive fund has much-reduced operating expenses, which translates to a lower TER.

Comparison Table Between AMC and TER

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 and 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, no extra costs may be deducted or added, and it has a set rate. AMC is sometimes called an investment obligation, recorded in the books.

Although that AMC is one of the tiniest components of investment but, simultaneously, it is a mandatory cost that must be paid. A particular formula can also be used to compute one’s AMC fee. AMC can 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 considering costs, investors look at the expense ratio to decide if a fund fits 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 costs of holding an investment fund. However, some charges may be excluded from the TER, particularly those made just once or with investment funds. 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 the other 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. On the other hand, TER is a cost 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. Conversely, TER 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 called an investment obligation, recorded in the books. Conversely, TER is never included in any 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.

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, expressed as a percentage, and derives its base from its 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