Why the headline fee is never the whole fee
Ask what an investment costs and you will usually be told one number. There are almost always at least three, and the gap between the number you are quoted and the amount you actually pay is where a lot of money goes.
The reason this matters is arithmetic rather than outrage. A cost is charged every year, on the whole balance, including the growth. It compounds against you in exactly the way returns compound for you.
The three numbers on a fund fact sheet
Every South African unit trust and ETF publishes a minimum disclosure document, usually called a fact sheet. Under the standard set by the Association for Savings and Investment South Africa (ASISA), it carries three cost figures:
- Total expense ratio (TER). The cost of running the fund, as a percentage of its average daily value. It includes the management fee (including any performance fee), administration, custody, trustee and audit fees and bank charges. ASISA's standard calculates it over a rolling three-year period and annualises it.
- Transaction cost (TC). What the fund pays to buy and sell its underlying assets: brokerage, securities transfer tax, the investor protection levy, Strate fees and foreign exchange or bond spread costs. It is not part of the TER, and it is higher for funds that trade a lot.
- Total investment charge (TIC). TER plus TC. This is the honest number for what the fund itself costs.
For a sense of scale, the Satrix 40 index tracker showed a TER of 0.10% in its 30 June 2026 fact sheet, with an annual management fee of 0.09%. How the cheapest trackers compare with active funds, and why that gap is so wide, is covered in the beginner's guide to ETFs. The point here is different: the fund's own number is only the first layer.
What the fund costs is not what you pay
The TIC covers the fund. It does not cover the platform holding it for you, an adviser, or the penalties for leaving a contract early. That is what the effective annual cost (EAC) is for.
EAC is an ASISA standard that splits the total cost of a product into four buckets:
- Investment management for running the underlying funds, taken from the TER and transaction cost figures.
- Advice for initial and ongoing adviser fees. If there is no adviser, this shows as zero.
- Administration for the platform or product wrapper.
- Other for everything left over, such as termination charges, penalties, loyalty bonuses, guarantees and wrap-fund charges.
It applies to unit trusts and other collective investment schemes sold through a platform, endowments, living annuities, retirement annuities and preservation funds. ASISA members are required to show an EAC on quotes for these products, and the figures are usually given over 1, 3, 5 and 10 years because some costs weigh more heavily in the early years. This is an industry standard rather than a law, so ask for the EAC in writing before you sign, and compare EAC to EAC rather than one headline fee to another.
Not every product has one. Some platforms point out that an open-ended account with no fixed term or benefit structure does not produce a single EAC, in which case the cost schedule and your monthly statements are where the real charges are.
What a fee gap is worth
Costs are easiest to judge in rands. Take three total-cost scenarios. These are illustrations, not named products, and they assume an investment that returns 9% a year before costs, with the cost taken off that return each year.
Start with R500,000 invested for 20 years:
- At a total cost of 0.25% a year, you finish with about R2.68 million.
- At 1%, about R2.33 million.
- At 2%, about R1.93 million.
The gap between the cheapest and dearest scenario is roughly R740,000. Put differently, the investor paying 2% ends up with about a third less growth than the one paying 0.25%, on the same underlying market.
Now the version that applies to most people: R500 a month for 30 years. You pay in R180,000 in total. At 0.25% you finish with about R869,000, at 1% about R745,000, and at 2% about R610,000. If you are still working out how to start, starting with R500 a month covers that first step.
None of this requires the expensive option to be badly run. It only requires it to charge more, every year, on a balance that is growing.
Where costs leak that nobody quotes
- Platform fees on top of the fund. A fund's TER usually leaves out the platform's charges, so the return you actually get through a platform can be lower than the fact sheet suggests. Platform fees vary with your adviser, any rebates the platform receives and how much you invest.
- Ongoing adviser fees. Some are paid as a trailer fee, an ongoing percentage of your balance rather than a charge on each purchase. It trades a smaller upfront cost for a higher running cost.
- The bid-offer spread on an exchange-traded fund. You buy at the offer and sell at the bid, and on a thinly traded fund that gap is a real cost that appears on no fact sheet.
- Brokerage and settlement fees per trade. Small, unless you invest monthly, in which case you pay them twelve times a year.
- Currency conversion on anything bought offshore directly. Compare the rate you were given with the market rate on the day, because the spread can cost more than the stated commission.
- Performance fees. They sit inside the TER, so they raise a fund's cost in a strong year, and they are not allowed on funds held in a tax-free savings account.
None of these are scandals. They are simply costs that do not appear in the number most people compare on.
Where to find these numbers
None of this is hidden, but it is not volunteered either. Three places to look:
- The minimum disclosure document. Published by the manager, usually as a one or two page PDF on its website. TER, transaction cost and TIC sit in a small fees block. Because ASISA's standard measures them over three years, a fund's costs from one fact sheet to the next change slowly, and a strong or weak year does not swing the figure much.
- An EAC quote. For a retirement annuity, endowment, living annuity or platform-held unit trust, ask the provider for the four-bucket breakdown. It is the only figure that lets you compare two whole products.
- Your own statement. A platform recovers its ongoing charges monthly, and if there is no cash in your account it does so by selling some of your units. That is why the cost never shows up as a payment. Look at the transaction list, not just the balance, and check whether your unit count is drifting down.
One caution: a TER is backward-looking. It reports what the fund cost over the last three years, not what it will cost next year. An EAC is a projection over stated periods. Use both, and treat each as an estimate rather than a promise.
Quick answers
Is the cheapest fund always the best choice?
No, but cost is the one variable you can know in advance. Future returns are a forecast; the fee is a fact. Between two funds tracking the same index, the cheaper one should come out ahead, because both hold the same assets. Check how closely each actually follows the index, since that gap also reflects costs.
What is the difference between TER and EAC?
TER is what the fund costs to run. EAC is what the whole arrangement costs you, including the platform, any adviser and exit penalties. EAC is the number to compare across providers.
Does a tax-free savings account lower my fees?
No. A tax-free account removes tax on growth, not charges. The fund and platform still charge what they charge, so the cost check applies in full. The TFSA or retirement annuity decision is a tax question, and the fee question sits next to it.
Do low costs matter on a small investment?
Less in rands, just as much in percentage terms, and the habit matters more than the amount. The R500 a month example above loses about R259,000 between the cheapest and dearest scenario, which is more than the R180,000 that was paid in.
Keeping the cost next to the rest of your money
Fees are invisible because they are deducted inside the fund or by selling units, rather than charged to your bank account. You never see the money leave. That is exactly why it helps to have each holding written down somewhere you look regularly. It also matters for retirement products, where the cost question is just as live, as set out in the guide to RAs, pensions and provident funds.
Budget Hub's investments hub records what you paid and what a holding is worth. A short list of JSE shares and ETFs is priced with a delay, and statement-based products like a retirement annuity are updated by hand. It does not track fees or read a fact sheet for you, so keep the minimum disclosure document or EAC quote alongside it. What it does is keep your holdings in front of you, and the free plan covers up to three.