Passive investing sounds like a dream. No staring at charts, no sweaty palms when Wall Street sneezes, and no pretending you know what “support levels” mean. Just steady exposure to the market, right? Well, before you kick back and let your money “work for you,” it helps to know exactly what ride you’re climbing into, what it costs, and how those costs nibble away at your returns.
Let’s unpack three big terms every South African retail investor will bump into when researching index funds: ETF vs Unit Trusts, Net Asset Value (NAV), and Total Expense Ratio (TER).
ETFs vs Unit Trusts – Same Destination, Different Ride
Think of ETFs and Unit Trusts as two taxis heading to the same destination: long-term growth. The difference is in how the meter runs.
ETFs (Exchange Traded Funds) are bundles of shares or bonds that trade on the JSE, just like any stock. Buy them, sell them, watch the live price move during the day.
Unit Trusts pool investor money and hand it to a fund manager to run. You don’t trade them on the JSE. Instead, you buy units at a price calculated once a day, after markets close.
Why it matters:
Liquidity: ETFs let you trade intraday. Unit Trusts? End-of-day only. If the market nosedives at 10 AM, you’ll still get the afternoon price.
Transparency: ETFs show live prices and order books. Unit Trusts just give you NAV.
Costs: ETFs are usually cheaper since they’re not actively managed. Unit Trusts often sneak in advisory and admin costs.
Minimum investments: Unit Trusts sometimes allow very low debit orders. ETFs typically need a brokerage account, but fractional investing is changing that.
Both can build wealth; it’s about picking the vehicle that matches your style (and tolerance for hidden costs).
NAV – The Fund’s True Value
NAV, or Net Asset Value, is what each unit in a fund is really worth. If a fund owns R10 million in assets and has 1 million units, then NAV = R10 per unit.
In Unit Trusts, NAV = the price. Simple.
In ETFs, NAV is just a reference. You trade at whatever price buyers and sellers agree on, which could be above (premium) or below (discount) the NAV.
Key lesson? Market price is not always equal to NAV. Know both before you buy, or you may end up overpaying.
TER – The Silent Wealth Eater
TER, or Total Expense Ratio, is the fund’s annual running cost. It’s taken automatically as a percentage of your investment.
A TER of 0.40% means R4 of every R1,000 goes to costs each year.
Over time, those small bites compound. A fund with 1.00% TER vs one with 0.20% could cost you tens of thousands of rand in lost returns over 20 years.
The kicker? Passive funds don’t need fat fees. Robots track indexes just fine.
Also, TER is not the same as Total Investment Cost (TIC), which includes platform fees and brokerage. That’s a horror story for another day.
The Other Fees They Don’t Put in Bold
Beyond TER, keep an eye out for:
Performance fees: charged if the fund “beats the benchmark.” Sounds fair, but often gamed.
Trading costs: Every buy and sell inside the fund has a price tag.
Wrap fees: extra charges if you’re investing through a platform.
Bid-offer spread: especially in ETFs, the gap between buy and sell prices can eat into returns.
Moral of the story? The less you know about fees, the more you’ll probably be paying.
Stokvel Starter Pack for JSE Jedi – Volume 8
ETF vs Unit Trust: ETFs trade like shares with live pricing and lower costs. Unit Trusts settle once daily and often charge more.
NAV: The real per-unit value. In Unit Trusts, it’s the price. In ETFs, it’s just a reference.
Premiums & Discounts: ETFs can trade above or below NAV. Don’t assume market price = fair value.
TER: The annual fee silently deducted from your returns. Even small percentages add up.
Other fees: Performance, wrap, trading, and spreads. Watch them all.
So next time someone shrugs and says “passive investing is set-and-forget,” you can raise an eyebrow and reply: “Sure, but what’s the TER, and is that ETF trading at a premium?”
That’s when you’ll know you’re no longer the clueless oke in the investment WhatsApp group.
As much fun as I have making sense of this jargon, nothing here is financial advice. Do your homework, chat to a licensed advisor, or ignore me completely if you prefer.