The cost of an MSCI World index fund, typically available as an Exchange Traded Fund (ETF), generally ranges from 0.10% to 0.50% per year in Total Expense Ratio (TER). This represents the annual fees charged by the fund provider.
Understanding the Cost: Total Expense Ratio (TER)
The primary cost associated with an MSCI World index fund is its Total Expense Ratio (TER). The TER is an annual percentage that covers the fund's operating expenses, including management fees, administrative costs, and other operational charges. It is automatically deducted from the fund's assets, so you won't see a direct charge but rather a slight reduction in the fund's performance.
For MSCI World ETFs, the TER typically falls within the following range:
| Cost Type | Annual Range |
|---|---|
| Total Expense Ratio (TER) | 0.10% - 0.50% |
It's important to note that this percentage is applied to the total value of your investment in the fund. For example, if you have £10,000 invested in an MSCI World ETF with a TER of 0.20%, your annual cost would be £20.
Why the Cost Varies
The specific TER can vary depending on several factors:
- Fund Provider: Different ETF providers (e.g., iShares, Vanguard, Xtrackers) offer their own versions of MSCI World ETFs, each with slightly different fee structures.
- Replication Method: Some ETFs use physical replication (buying all the underlying stocks), while others use synthetic replication (using swaps). While both aim to track the index, their operational costs can differ.
- Fund Size and Liquidity: Larger, more liquid funds might benefit from economies of scale, potentially leading to slightly lower TERs.
MSCI World ETFs vs. Actively Managed Funds
One of the significant advantages of investing in an MSCI World index fund via an ETF is its cost-efficiency. Compared to actively managed funds, which involve fund managers making investment decisions and charging higher fees for their expertise, MSCI World ETFs are considerably cheaper. Actively managed funds often charge much higher fees per year, sometimes exceeding 1.0% or 2.0% annually, which can significantly eat into long-term returns. The lower TER of index funds is a key reason for their popularity among passive investors.
Finding the Best MSCI World ETF
To find the specific cost for an MSCI World ETF, you should check the Key Investor Information Document (KIID) or the fund's factsheet provided by the ETF issuer. Websites like justETF offer tools and comparisons to help you identify and compare different MSCI World ETFs based on their TERs and other factors.
