Fund fees compound just like returns — against you. Compare your fund's TER with a cheap index alternative and see the euro cost over your investment horizon.
A 1.3-point fee difference sounds trivial but routinely consumes 20%+ of the final balance over 25 years, because every euro of fees also forfeits all its future growth.
Fees are one of the few return factors you fully control. The comparison assumes identical gross returns, which is roughly what the active-vs-index evidence supports on average.
The comparison holds gross returns equal, which is deliberately generous to the expensive fund. Where the higher fee buys higher turnover it usually brings transaction costs and, in taxable accounts, realised gains that the headline ratio never mentions — so the real gap tends to be wider than the TER difference alone.
A percentage fee is also an increasing amount of money. At 1% of a €10,000 pot that is €100; at 1% of €500,000 it is €5,000 for a service that has not changed. This is why fee negotiation matters most exactly when the balance is largest and the percentage feels smallest.
Not all costs live in the TER. Platform or custody charges, bid-offer spreads, currency conversion on foreign holdings and performance fees all sit outside it, and on some products they add more than the headline figure itself. The number worth comparing is the total paid per year, not the ratio quoted.
Frequently asked questions
Do fund fees really matter that much?
Yes — fees compound against you. A 1.3-point TER difference routinely consumes 20% or more of the final balance over 25 years, because every euro of fees also forfeits its future growth.
What is a TER?
The total expense ratio: the fund's annual running cost, deducted automatically inside the fund. You never see the charge, which is exactly why it is easy to underestimate.
What is a reasonable TER?
Broad index ETFs charge roughly 0.05–0.3% per year; actively managed funds often 1.5–2%. Fees are one of the few return factors entirely under your control.