Looking for the cheapest way to invest in shares? We list the top ten index trackers following the UK market.
The Fool has been a fan of index trackers since this site began almost 10 years ago. The logic for this has always been simple. Their low costs mean that they beat the majority of professional fund managers over the long term.
However, finding information on which trackers are the cheapest has never been an easy task. So let us do the hard work for you. Here are the cheapest 10 trackers that follow the FTSE 100 or FTSE All-Share indices:
Name | Total Expense Ratio | Index |
|---|
Fidelity Moneybuilder UK Index | 0.3% | All-Share |
Edinburgh UK Tracker | 0.3% | All-Share |
F&C FTSE All-Share Tracker | 0.34% | All-Share |
Liontrust Top 100 | 0.38% | FTSE 100 |
iShare FTSE 100 | 0.4% | FTSE 100 |
M&G Group Index Tracker | 0.46% | All-Share |
Legal & General UK Index | 0.52% | All-Share |
Prudential UK Index Tracker | 0.52% | FTSE 100 |
Allianz RCM UK Index | 0.61% | All-Share |
Gartmore UK Index | 0.7% | All-Share |
A few words of explanation on the above...
Total Expense Ratios
This measure is a better way of judging a fund's costs than just looking at its annual management charge. The Total Expense Ratio, or TER, includes various other administration costs a fund faces such as for trustees and auditors, as well as any annual management charge.
Types of funds
Most of these funds are open ended investment companies, which you can buy from the fund manager that runs them or via a fund supermarket or investment adviser. In most cases, minimum investment limits are £500 for a lump sum and £50 on a monthly basis.
The two funds that are not open ended investment companies are Edinburgh UK Tracker, which is an investment trust, and iShare FTSE 100, which is an exchange traded fund. As it happens, these are the two that I own. These have to be bought via a stockbroker.
Edinburgh UK Tracker is currently merging with another investment trust tracker called Tribune UK Tracker. This is expected to complete around the middle of September and the cost of the fund following the merger is predicted to be around 0.3% a year, which is what I've used above. Its current TER is 0.4%, which would place it in the middle of our top ten rather than the number two slot.
What about other indices?
Here I've concentrated on funds that track the majority of the UK market, so I've only looked at funds that follow the two broadest measures of the market -- the FTSE 100 and the FTSE All-Share.
However, there are other indices that investors like to track. In the UK, trackers that following the FTSE 250 index, technology shares and high yield shares have all done better than the broader UK market in the last few years. Looking further afield, trackers following the European markets have also done better than the FTSE 100 or FTSE All-Share.
Beating the taxman
Sheltering your index tracker in an ISA is always a good idea. If you're holding for the long term you'd hope to build up a sizable sum and you don't want the taxman grabbing a slice. You can find out all about ISAs here.
Happy tracking!
You could buy shares in the Edinburgh UK Tracker fund and ishares FTSE 100 via The Motley Fool Sharebuilder. The trading commission could be as little as £1.50.
