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How to use the TER when weighing up unit trusts to invest in

by , 16 November 2015

Once you know the type of unit trust you want to invest in, you'll discover that there are many similar unit trusts on the market.

So how can you weigh up the best option?

Read on to find out…


What is the TER?

 
All unit trusts must publish their total expense ratio (TER). South African unit trusts have had to provide this since May 2007.
 
The TER gives you all the annual expenses for a fund, excluding trading costs, presented as a percentage of the total assets under management. The annual expenses include the annual fees and any performance fees.
 
You’ll find it included with other information on a unit trust’s fact sheet.
 

Using the TER in your hunt for unit trusts

 
The TER is worth checking when you’re searching for new funds to invest in. You should weigh each TER up in turn.
 
A high expense ratio doesn’t mean you shouldn’t invest in a fund. It simply means the fund has high expenses. If performance is really good, this higher expense ratio is justified. Plus the TER will also include a performance fee in this case.
 

What the TER doesn’t include 

 
As we looked at above, the TER is all the costs of a fund apart from trading costs. This means the TER doesn’t include any advisor or administration costs you may have to pay. And it doesn’t include the initial cost of buying into the fund. 
 
You’ll find these charges listed separately in a unit trust’s fact sheet.
 
The TER is definitely something worth paying attention to when investing in unit trusts. 
 
If you’re looking to invest in a more passive fund that tracks an underlying index, you should pay close attention as you could find a fund mirroring the performance of another but with lower charges.
 
So there you have it. How to use the TER when weighing up unit trusts to invest in.
 
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