Cheap trackers: beware hidden fees

The cheaper a tracking fund is, the better. But watch out, not all costs are included in the published total expense ratio (TER) figure. Paul Amery explains.

Costs matter when it comes to investing. Small differences in annual fund expenses can lead to a big difference in the value of a fund a decade later. So it makes sense to buy cheap tracking funds whenever possible. But watch out the total expense ratio (TER) may not tell the whole story.

The TER, which all funds publish, covers the management fee and charges for services such as custody, audit and share registration. Actively managed funds often have higher TERs (1.5%-2% a year) than index-tracking funds (where it can be as low as 0.1%). But certain costs aren't included in the TER.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
Paul Amery

Paul is a multi-award-winning journalist, currently an editor at New Money Review. He has contributed an array of money titles such as MoneyWeek, Financial Times, Financial News, The Times, Investment and Thomson Reuters. Paul is certified in investment management by CFA UK and he can speak more than five languages including English, French, Russian and Ukrainian. On MoneyWeek, Paul writes about funds such as ETFs and the stock market.