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Weighing up different unit trusts? Check the fund's TER

by , 19 February 2014

When you start reading the fact sheets that accompany different unit trusts, you'll come across the total expense ratio (TER). If you're stuck between choosing which fund to invest in, comparing the different TERs can help you come to a decision. But what exactly is the total expense ratio? Let's take a closer look at what it means…

May 2007 saw the introduction of the total expense ratio (TER) into the unit trust fund industry, the team of experts at The South African Investor explain…

The ratio includes all the annual expenses in a fund except for trading costs. This covers the fund’s annual fees and performance fees. The fund manager adds these up and shows them as a percentage of the assets under management.

When you’re looking into funds to invest in, it’s a good idea to keep track of the TER.

A high TER isn’t a bad thing

But before you start crossing funds with high TERs off your list, a high expense ratio doesn’t mean it’s a bad or inappropriate fund. A high TER just means the fund has relatively high expenses.

If a fund has performed well, it will have a higher TER than a fund that’s been performing poorly.

But beware, the TER doesn’t include any ongoing costs.

For example, it won’t reflect the fee you pay to a financial advisor. And it doesn’t include the initial charge when you first enter a fund. The fund manager will show these costs separately.

When you’re evaluating which unit trust to invest in, it’s worthwhile considering the TER of the fund. You can use it along with other factors, such as the recent performance of the fund, to help you make a decision about which fund is best for your cash.

So there you have it, what the total expense ratio is.



Weighing up different unit trusts? Check the fund's TER
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