See how much a fund's annual charge takes from your investment over time.
A fee of 1% a year sounds small, but it is taken every year from a balance that keeps growing, so it compounds against you. Enter an investment, a return before fees and two fund charges to see the difference in money at the end.
| Year | Paid in | No fees | Fund A | Fund B |
|---|
Fees are deducted monthly from the balance at one-twelfth of the annual rate, and the return is compounded monthly. Real funds also have transaction costs, platform fees and, for some, entry or exit charges and performance fees; add those to the annual charge to get closer to your total cost. Returns are not guaranteed.
Why fund fees matter more than they look
An annual charge is taken as a percentage of everything in the fund, including past growth, every year. Over 25 years, the gap between a low-cost and a higher-cost fund is not 25 times the fee on your first deposit: it is the fee on a balance that has grown, plus the growth that money would itself have earned. The table shows how the gap widens with time.
The headline charge is not the whole cost. Our guide to investment fund fees explains ongoing charges, transaction costs and performance fees, and how to find them in a fund's key information document.
Questions
What is the difference between an ongoing charge and a TER?
Both express a fund's yearly running costs as a percentage of its assets. In Europe, the ongoing charges figure (OCF) is published in the fund's key information document; in the United States the equivalent is the expense ratio. Neither includes all trading costs inside the fund.
Is a cheaper fund always better?
Only if the two funds hold similar investments. A low fee on a fund that does not match your goal is not a saving. Compare funds that track the same market or follow the same strategy, then compare their total costs.