# Reading a factsheet: index fund, ETF, accumulating, tracking difference, domicile

> What the lines on a fund factsheet mean and which of them change what you actually pay and get.

- Course: [Long-Term Investing: Index Funds, Risk and Your Own Behavior](https://productovi.com/courses/long-term-investing.md)
- Module: What does a fund really cost?
- Lesson 19/32, ~25 min
- Source: https://productovi.com/courses/long-term-investing/reading-a-factsheet

## Six factsheets on the table

**Alex Tutor:** Mid-June at Zapas. The fund line-up for the November launch has to be fixed this month, and Grace has printed six factsheets.

**Grace:** Before anyone picks, everyone on the team should be able to read one of these. Six funds: two of ours, one third-party index fund, an active fund, a theme fund and a bank fund.

**Ethan:** I only look at two numbers: the fee and the five-year return. What else is there?

**Grace:** About twenty lines, and several of them cost more than the fee. Here they are, all synthetic.

**Dataset (CSV):** [Six fictional fund factsheets](https://productovi.com/datasets/long-term-investing/reading-a-factsheet/factsheets.csv)

Synthetic. Percent columns are % a year except `typical_spread_pct` (per trade, half on buying and half on selling), `entry_fee_pct` and `fx_fee_pct` (per conversion). `tracking_difference_pct` = fund return minus index return over a year; empty for funds that track no index.

**Sofia:** S1 is our Zapas World Stock. It says "index ETF". Is an ETF different from an index fund?

**Grace:** They answer different questions. "Index" says what the fund holds: a whole index, by rules. "ETF" says how you buy it: on an exchange, during the day, with a spread. S4, Star Growth, is neither: a manager picks 45 stocks, and you buy at one price a day.

> **Exercise:** On the factsheets, S1 Zapas World Stock is an "index ETF" with 3,000 holdings tracking Tessaro World; S4 Star Growth is an "active fund" with 45 holdings, dealt once a day at the fund price. Which statement is right?

![A factsheet reads in three blocks: what the fund holds, what it costs and where it is registered; for Zapas World Stock the cost lines add up to 0.61% a year all-in over ten years.](https://productovi.com/courses/long-term-investing/diagrams/m5-l3-factsheet-blocks.png)

*Holdings, costs, domicile: the headline fee is one line of the middle block.*

**Sofia:** S1's ongoing charge is 0.20%, but its tracking difference is −0.25%. Which one do I believe?

**Grace:** The tracking difference. It's what the fund actually delivered against its index over the year, after the fee and everything else inside: trading, cash, and tax withheld on dividends. The fee is a promise; the tracking difference is the receipt.

**Index funds: ongoing charge vs what they lost to the index**

| Fund | Ongoing charge | Tracking difference |
| --- | --- | --- |
| S1 Zapas World Stock | 0.2 | 0.25 |
| S2 Halden World Index | 0.05 | 0.06 |
| S3 Zapas Short Bond | 0.15 | 0.18 |
| S5 Robo Theme | 0.65 | 0.75 |

*Tracking difference shown as a positive number. Synthetic data.*

> **Exercise:** S1 Zapas World Stock has an ongoing charge of 0.20% and a tracking difference of −0.25%. So it trails its index by 0.20% a year.

**Ethan:** And this "accumulating" and "distributing" line? Sounds like accounting.

**Grace:** It decides what happens to dividends. An accumulating fund reinvests them inside the fund. A distributing one pays them out, and for our users that means tax withheld on the way, a conversion, and a choice to reinvest by hand.

> **Exercise:** Match each factsheet term to what it means.

**Sofia:** And domicile? S1 says "EU-domiciled UCITS", S2 says "US-domiciled".

**Grace:** It's where the fund is legally registered. For now remember one effect: it changes how much tax is withheld from dividends for a user like ours. S2 distributes, and 30% of its dividends is withheld. We'll do the full rules in autumn, before the Ukraine launch.

> **Exercise:** S2 Halden World Index is a distributing fund with a dividend yield of 1.8% a year, and 30% of its dividends is withheld as tax for a user like ours. How much does this tax drag cost a year, in % of the investment?

**Ethan:** So a US-domiciled fund is simply worse?

**Grace:** Not in general. For our users its dividends lose more to tax on the way, and S2 also needs a separate foreign broker account. We count both as costs; the legal details wait for autumn.

**Grace:** Now put it all together for S1. One formula, held for ten years, so the one-off costs are spread over the years.

$$
\text{all-in} = \text{fund level} + \text{platform} + \text{tax drag} + \frac{\text{spread} + 2 \times \text{FX} + \text{entry fee}}{10}
$$

*Yearly all-in cost over a 10-year holding. Fund level = |tracking difference| for an index fund, ongoing charge + trading costs otherwise; tax drag only for distributing funds.*

> **Exercise:** S1 Zapas World Stock: tracking difference −0.25%, platform fee 0.25% a year, accumulating (no extra tax drag), typical spread 0.10%, FX fee 0.50% per conversion (two conversions), no entry fee. What is its yearly all-in cost over a 10-year holding, in %?

**Sofia:** Three times the headline fee. And that's our own fund, the one that looks cheapest.

**Grace:** It's still a fair number to set next to the others. A user who stays two years instead of ten pays more per year, because the one-off costs are spread over fewer years.

**Ethan:** So for index funds I should compare tracking difference, not the fee. Fine. But is the fee ever the right number to compare?

> **Exercise:** Two index ETFs follow the same index. Which number tells you more about what the fund itself costs its investors?

> **Exercise:** Which factsheet lines can change what a Zapas user actually pays or keeps? Select all that apply.

**Ethan:** Good. Then the app should show a short summary card for every fund instead of the full factsheet. Write the one for S1.

> **Exercise:** Write the plain-language summary the Zapas app shows for S1 Zapas World Stock (3–4 short lines). Use the factsheet: index ETF on Tessaro World, about 3,000 companies, physical, EU-domiciled UCITS, accumulating, tracking difference −0.25%, all-in about 0.61% a year over 10 years.

**Grace:** That's the skill. Next week we use it for real: three funds for the launch, out of these six.

> **Key ideas**
>
> - "Index" says what a fund holds (an index by rules); "ETF" says how you buy it (on an exchange, with a spread). An active fund's manager picks the holdings.
> - For index funds compare the tracking difference over several years, not the fee: S1 trails by 0.25% against a 0.20% fee.
> - Accumulating funds reinvest dividends; for distributing funds add tax drag: yield × withholding (S2: 1.8% × 30% = 0.54%).
> - Domicile (EU-domiciled UCITS vs US-domiciled) changes the tax on dividends; full rules in the autumn module.
> - One all-in number per fund over the same holding: S1 = 0.61% a year over 10 years.

> **Educational, not advice**
>
> This lesson explains how investing works; it doesn't tell you what to buy. Investments can fall and you can get back less than you put in. Check the current rules where you live or ask a licensed professional.

- Previous lesson: [What 0.2% vs 1.5% does over 10 to 40 years](https://productovi.com/courses/long-term-investing/fee-drag-decades.md)
- Next lesson: [Case: pick the fund line-up from six factsheets](https://productovi.com/courses/long-term-investing/case-fund-lineup.md)

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