Page 58 - Profile's Unit Trusts & Collective Investments - March 2026

Chapter 3 Costs and pricing

The difference between the TER and the annual service fee percentage gives an idea of the
operating cost-efficiency of the fund. A TER of 2.5% and an annual service fee of 1.5% means that
1% per annum of portfolio value was eroded by operating costs.
TERs are provided quarterly by all member funds. Single-tier funds are required to provide updated
figures within a month of the quarter end, multi-tier (hybrid) funds within six weeks and fund of funds
(FoFs) within two months of the quarter end.
From an interpretation point of view the TER needs to be regarded as an indicative figure rather
than an absolute figure.
The TER and transaction costs
From January 2016 the TER standard changed to eliminate minor differences in calculation
methodology that were permissible under the old system (mainly, whether trading costs were
included or excluded).
Since 2016 the TER excludes transaction costs. However, these costs are now quantified in a
new transaction costs (TC) statistic which all managers are required to publish on an ongoing basis.
Note that the TC is sometimes taken to mean total costs (which is not correct as per the FSCA
definition). To avoid confusion, some managers quote the total investment costs (TICs), which is
the sum of the TER and the TC percentages.
Transaction costs are the only exclusion from the TER. The TER includes management fees,
performance, administration costs, custody fees, trustee fees, audit fees, bank charges, taxes,
interest paid, and scrip-lending costs.
The TC ratio includes brokerage (including VAT), securities transfer tax (STT), investor protection
levies, STRATE contract fees, foreign exchange spread costs, bond spread costs, and contract for
difference costs.
Where transaction costs are capitalised in the trading price (as is the case with bonds, CFDs and
certain forex instruments), the fund manager must make estimates based on fair principles and
include such estimates in the TC calculation.
In summary, since January 2016:
R The TER does not include entry costs
R The TER does include annual fees and performance fees and other portfolio charges
R Transaction costs are quantified separately in the new TC ratio
Performance fees
Performance fees are included in the TER. However, to enable investors to determine the extent
of performance fees (which may vary considerably over time), the fund manager must disclose the
performance fee for the period as a percentage of the fund.
So, for example, if a fund which charges a performance fee discloses a TER of 3.5%, an annual

TER vs OCF vs EAC
In the UK the TER has been replaced by the ongoing charges figure (OCF). When looking
at overseas funds quoting the OCF, it’s important to note that the figures are not
interchangeable as the calculation methodology differs in some respects. The TER in SA,
for example, includes performance fees and tax charges (where applicable) – both are excluded from
the OCF. Both the OCF and the TER exclude costs associated with transactions (such as brokerage).
The TIC in SA is largely comparable to the UK’s OCF plus performance fees plus trading costs.
The effective annual cost (EAC) attempts to cover all financial products, not just collective investments,
and applies to fixed term funds as well as open-ended funds.
Key differences between the TER and the EAC in SA are:
„ The TER is backward looking, the EAC is forward looking
„ The EAC includes various costs excluded from the TER, such as initial charges, contract penalties
and exit charges

56 Profile’s Unit Trusts & Collective Investments March 2026