How to weigh up unit trusts with the help of the TER

Julie Brownlee, Fsp Invest, 04 Sep. 2014

Tags: unit trusts, ter, total expense ratio, unit trust costs, investing in unit trusts, costs of unit trusts, what is ter

If you’re interested in buying into unit trusts, you’ll find there are hundreds of them available. They vary from replicating the Top 40 Index to concentrating on mining companies.

But if you’ve narrowed down what type of unit trust to invest in, how can you see what the costs are like between funds?

That’s where the TER comes in.

So what is the TER? And how can you use it when investing in unit trusts?

Let’s take a closer look…

What is the TER?

When it comes to investing in unit trusts, as with any other investment, costs matter. The higher the costs to invest in a unit trust, the less money you have working for you in the market.

Keeping your costs as low as you can is vital.

So to help you to weigh up the costs associated with different unit trusts, fund managers will publish the total expense ratio (TER) of the fund in its fact sheet.

The idea of the TER is that it tells you the annual costs of a fund as a percentage of its average asset value over a year.

TER = Total costs / total assets

The total costs part of the TER includes:

  • The fund manager’s fee for running the fund’s portfolio;
  • Administration costs;
  • Marketing costs; and
  • Any regulation costs.

By looking at the TER of different funds you might want to invest in, it gives you a good way to compare the different costs involved in different funds.

The disadvantages of the TER

But the TER doesn’t include all costs that will affect a fund’s portfolio.

For instance, it doesn’t include any broker fees the fund incurs for buying and selling shares. Nor does it include the fees associated with buying and selling shares, such as securities transfer tax.

So if you find a fund with a low TER, but it buys and sells a lot of shares throughout the year, the fund could carry higher costs than a fund with a high TER that doesn’t buy and sell shares very often.

The TER is a good starting point to weigh up funds. But you need to try to find out more about the fund to see if the TER is a good reflection of what goes on in the fund or not.

So there you have it, how to weigh up unit trusts with the help of the TER.

*********** New release ************

How would you like to WIN R100,000 trading the stock market?

If you've ever dreamed of living the life of a high-flying trader - And earning a consistent income from the stock market - NOW is your chance!

Join the R100,000 Traders Challenge today and we'll:

  • teach you how to trade - even if you've never bought or sold a stock before
  • give you a FREE trading account to hone your trading skills
  • and give you a chance to win R100,000 in REAL MONEY

That's right! The top three traders by the 30th of November 2014 will take home a combined R100,000!

So what are you waiting for? Click here and become a high-rolling trader today!


Related QA

garthc asked:
How can I find out more information about a specific unit trust? [read more]
Published at 30 Nov. 2015 in: Unit Trusts Information about unit trusts Researching unit trusts 1 Answer
name asked:
What should I look for when investing in gold funds? [read more]
Published at 27 Nov. 2015 in: Unit Trusts Gold unit trusts Gold funds 1 Answer
alfredm asked:
I want to invest in a tracker unit trust, but I’m not sure how to pick one to invest in. What do I need to consider? [read more]
Published at 24 Nov. 2015 in: Unit Trusts Tracker unit trusts Investing in tracker unit trusts 1 Answer
JacoE asked:
I am really interested in investing in unit trusts as I don’t want the bother of investing via a stock broker. I’ve had a look and there [read more]
Published at 23 Nov. 2015 in: Unit Trusts Investing in unit trusts Picking unit trusts 1 Answer
Eason asked:
I want to invest in unit trusts for the future. What proportion should I hold in equities and what proportion should I hold in bonds? [read more]
Published at 20 Nov. 2015 in: Unit Trusts Investing in unit trusts Equity unit trusts Bond unit trusts 1 Answer

Related articles: