Best cheap index tracker funds: how to invest

Best cheap index tracker funds: how to invest

Looking for a cheap index tracker fund to invest in? Here we explain how they work and highlight some of the best tracker funds with low fees and charges.

Investing and pensions

Index tracker funds are a popular, low-maintenance investment option. 

Here, we look at why so many people invest in tracker funds and explain how you can get involved while keeping fees and charges to a minimum.

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Cheap index tracker funds

Tracker funds are passive investment vehicles that simply follow a designated index.

So if the index rises, so does your investment. And if it falls, your investment value will drop too.

Because there are no managers involved in these funds, they are cheaper than investing in an actively managed fund.

The absence of a fund manager doesn’t have a major effect on performance, though.

Tracker funds tend to reflect market conditions more accurately than active managed funds.

So, when markets are rising trackers tend to rise closely in line with them, but in bear markets trackers tend to suffer more badly than funds that have a manager who can react to the changing times.

[SPOTLIGHT]But, before you start piling your money into tracker funds you need to take some time to pick the right ones. Although tracker funds can be cheap costs vary widely, and how you invest will also affect your fees. Some platforms charge far more than others.

We've searched the market to find the cheapest index tracker funds and where to buy them.

We'll be focusing on the ongoing charge, which is a better way of comparing costs than the annual management fee as it includes all administration and dealing charges.

When choosing where to buy your funds remember to consider dealing fees and platform charges too.

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FTSE trackers

The cheapest fund tracking the FTSE 100 is the Legal & General UK 100 Index which has an ongoing charge of 0.82%. But, if you buy it via Hargreaves Lansdown that fee falls to an impressive 0.06%.

If you want a fund that tracks the entire FTSE then the Fidelity Index UK has an ongoing cost of just 0.09%, which you can cut to 0.06% if you buy it through Fidelity or Cavendish Online.

European trackers

Those people looking for a fund that tracks the European indexes could consider the Fidelity Index Europe excluding UK which costs 0.10%. It tracks the MSCI Europe excluding UK Index.

US trackers

The cheapest US tracker fund is the Fidelity Index US, which has ongoing charges of 0.07%.

Global trackers

Anyone looking for cheap exposure to emerging markets should take a look at the Fidelity Index Emerging Markets. It tracks the MSCI Emerging Markets Index and has ongoing costs of 0.21%.

If you want exposure to some of the world’s biggest companies then the cheapest tracker option is the Legal & General International Index Trust. It has ongoing charges of 0.89%, but you can cut that to just 0.13% if you buy via Hargreaves Lansdown.

For people looking for international small caps then there is the Vanguard Global Small Cap Index Fund with ongoing costs of 0.38%.

Finally, if you are looking for a global tracker but don’t want it to overlap with a UK tracker you already own then consider one of the few global trackers that exclude British stocks.

The cheapest is the Vanguard FTSE Developed World ex-UK Equity Index Fund which has an ongoing charge of 0.15%.

Tired of miserly savings rates? Visit the loveMONEY investment centre

This article has been updated

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