Costs

One of the key attractions of investing through investment funds is that they provide the expertise of a skilled fund manager, which would be very hard (and expensive) for most investors to acquire for themselves. The cost of fund management and all the other expenses involved in operating the fund, from share trading fees to the safekeeping provided by the fund's custodian, are spread between all the investors in proportion to the money they have put in. The overall cost of operating the fund, which is deducted by the manager from the fund's total assets, is usually called the Total Expense Ratio (TER). It is measured as a percentage of the total value of the fund's assets and is published in the fund's annual report. TERs are also published by financial media and specialist web sites offering information on and comparisons between different funds.

The exact level may depend on the size of the investment fund – the costs of larger funds are borne by a larger investor base and therefore will probably make up a smaller proportion of the fund's net assets. Funds that use complex strategies may pay a higher fee to the manager; those that invest in developing markets may have to pay higher trading costs. As a rule, money-market funds are less expensive than bond funds, which in turn are cheaper than equity funds. Because passive funds that replicate indices do not take active investment decisions, their management fees tend to be lower than those of actively managed funds, sometimes significantly so.