How to use the TER when investing in unit trusts

Julie Brownlee, Fsp Invest, 16 Apr. 2015

Tags: ter, total expense ratio, unit trusts, investing in unit trusts, unit trust fees, unit trust costs,

As with most forms of investing, there are costs involved when you invest in unit trusts.

With unit trusts there are a few different charges and fees that you’ll come across. To try and make these more transparent for investors, unit trusts publish their total expense ratio (TER).

So what exactly is the TER? And what does it include?

Read on to find out more…

What is the TER?

The total expense ratio or TER is a ratio that shows the annual expenses a fund incurs. The South African unit trusts industry introduced its use in May 2007.

The TER shows you the annual fees and performance fees of a fund added up together and given as a percentage of the assets under management.

The higher the TER, the higher a fund’s expenses are. But a higher TER isn’t always a bad thing. For example, if a fund has performed well, its TER will be higher due to the performance fees than a fund that hasn’t done as well.

What is not included in the TER?

The TER doesn’t include trading costs. It also doesn’t include the initial fee of investing in a fund. This may include a commission fee to a financial advisor.

Just remember that in many instances the initial fee is negotiable, so check this out.

When trying to decide what unit trust to invest in, the TER can be useful along with other information such as how the fund has performed.

As with performance, the TER is historic. This is because it’s based on what fees the fund’s incurred in the 12-months up to when the fact sheet was last updated.

So there you have it, how to use the TER when investing in unit trusts.

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