What are ETF fees and how are they charged?

What is an ETF fee?

The ETF fee is called an 'expense ratio.' Although, it is also sometimes knows as the management expense ratio (MER) or ongoing charges figure (OCF). 

An expense ratio is simply the ongoing cost of investing in a mutual fund or exchange-traded fund (ETF), and it’s charged as a percentage of the money you have invested the fund. It is made up of various operational costs and administrative expenses. 

How are ETF fee's charged?

These are not deducted or withdrawn directly from the investor's account. Instead, the ETF fees are taken from the fund's assets (net asset value (NAV)) by the fund provider (Vanguard and BlackRock in our case) before they are included in the investors assets. 

Our standard ETF fee is 0.1% per annum. Therefore, on an investment of $10,000, the expected expense to be paid over the course of the year is $10.00. If the ETF returned precisely 0% for the year, the investor would slowly see their $10,000 move to a value of $9,990 over the course of the year. 

Why is this important?

The size of the expense ratio is important to investors, as the costs are withdrawn from the fund, affecting investors' returns. For example, if a fund generates a return of 7% for the year but has an expense ratio of 4%, the 7% gain is greatly diminished to roughly 3%.

As Sarwa we focus on low-costs and so the ETFs that we offer have ultra-low expense ratios, starting at just 0.03% per year!  

 

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