How do I measure costs on my unit trust fund?

Key takeaways

  • Most unit trust companies have adopted the total expense ratio (TER) and transaction costs (TC) as the standardised disclosures on costs for unit trust funds.
  • The TER measures a number of costs including the asset or fund management fees, performance fees, custody and trustee fees, bank charges, audit fees and taxes.
  • The TIC includes the costs incurred in managing the assets, such as the brokerage costs, settlement costs and securities taxes.
  • These fee measures show you the costs of the past year quoted as an annual percentage of your investment and are updated quarterly.
  • Members of the Association for Savings and Investment South Africa disclose costs you are likely to pay over the term of an investment product as the effective annual costs.

All the costs that are levied on your unit trust investment have to be disclosed to you, but it is easy to miss the significance of these costs and to be confused about how much you will pay in total.

Investment providers have been using different measures of costs and you may have been quoted the total expense ratio (TER), total investment cost (TIC) or the reduction in yield (RIY).

Collective investment schemes are obliged to publish TER of funds on their websites and in at least one national newspaper.

The Association for Savings and Investment South Africa (ASISA), the member association for most unit trust companies, has drawn up a standardised disclosure for the total expense ratio (TER) and transaction costs (TC) for collective investment schemes.

Total expense ratio

In terms of ASISA’s standard, the TER includes the following expenses:

  • Fixed asset management fees;
  • Performance-based management fees;
  • Administration costs;
  • Custody fees;
  • Trustee fees;
  • Audit fees;
  • Bank charges;
  • Taxes;
  • Net negative interest charges (where the net interest from trust accounts is negative for a month due to for example large overdrafts);
  • Expenses in underlying investments when there is more than one tier to the product – for example, a fund of funds;
  • All costs incurred in scrip-lending

Transaction costs

In terms of ASISA’s standard, the TC includes the following costs incurred in managing an investment’s assets:

  • Brokerage paid to stockbrokers when buying shares and other securities starting at 0,25% of the value of your shares;
  • VAT on charges such as brokerage;
  • Securities transfer tax – a tax paid when a listed or unlisted company transfers shares to a buyer. The person to whom the shares are transferred pays the tax to the South African Revenue Service at a rate of 0,25% of the shares.
  • Investor protection levy – a mandatory levy collected by the JSE and paid to the Financial Sector Conduct Authority at 0.0002% on the value of your shares which covers the cost of regulating the securities market and dealing with issues such as insider trading and market manipulation, which is ultimately for your benefit;
  • Strate contract fees to cover the costs of the electronic settlement of your transactions through Strate, the electronic settlement authority;
  • Foreign exchange spread costs – the difference between the price at which foreign currencies are bought and sold;
  • Bond spread costs – the difference between the price at which bonds are bought and sold;
  • The costs of a contract for differences (CFD) – a contract used by managers to trade securities in the short term – it pays the differences in the settlement price between the open and closing trades.

Unit trust companies quote their TERs and TCs as an annual percentage of the amount you have invested. They update their TERs each quarter.

The TER and TC therefore tell you what costs were for the past year, not what they will be in the future.

Some fund fact sheets refer to a total investment charge or TIC which is the sum of the TER and the TC.

Costs beyond fund costs

In 2016, ASISA introduced for its members the effective annual cost (EAC) as a standardised method of disclosure for costs you are likely to pay over the term of an investment product regardless of the product through which you invest.

The EAC shows you what the costs are likely to be over different periods during the term of a product, using the current TER and TC.

The EAC is especially useful when there are upfront costs, penalties or loyalty bonuses which can make the investment cost more over a shorter term.

The EAC should be on any product quote or unit trust application form you receive and provides a way of comparing costs across products including unit trusts, investment platform contracts, retirement annuity funds, preservation funds, living annuities and insurer’s investment products (but not life, disability or severe illness policies).

The costs measured by the EAC include:

  • The investment charges:
    • The asset management and other fees expressed as the TER.
    • The transaction costs your fund manager incurs when buying shares and other securities – the TCs.
  • The advice costs:
    • Fees or commissions paid to a financial adviser that are deducted from your investment (but these costs exclude any advice fees, such as an hourly rate, that you pay directly to your adviser).
  • The administration charges:
    • Any investment platform administration fees.
    • Any product fees, such as an administration or policy fee on an RA.
    • Any marketing costs the product provider charges you.
  • Any other charges:
    • Penalties for early termination.
    • The cost of loyalty bonuses.
    • The costs of any guarantees on your returns.The EAC replaces the reduction in yield (RIY) measure of costs that was widely used by the life assurance industry.

The reduction in yield attempted to express all the charges you would pay over the life of the investment as a percentage of your investment return that you would sacrifice to costs. For example, a 3.5% reduction in yield a year when your annual return is 10% means you would only earn 6.5% after costs.

To calculate this, assumptions were made about the expected future returns, which could of course prove wrong.

Collective investment schemes were prohibited from using this measure as the law regulating these schemes restricts them to reporting only actual performance. 


ASISA has also drawn up a standardised cost disclosure for the savings portion of retirement funds that has been effective since March 2019. 

The Retirement Savings Cost (RSC) Disclosure Standard is aimed at trustees and employers wanting to make comparisons between savings products, such as an umbrella retirement fund and an unclaimed benefit fund.

The RSC disclosure standard does not apply to retirement annuity funds (including group RA funds), preservation funds, beneficiary funds, annuities (pensions) you buy with retirement savings and other products designed for you as an individual. Read more: What is an umbrella retirement fund?