More than £6.1bn invested in overpriced trackers

Some of the biggest FTSE-tracking funds on the UK market have charges that exceed 1 per cent, and are more expensive than other passive funds tracking the same index. In the worst cases, these are more expensive than equivalent actively managed funds.

For example, if you put £100 into Virgin's UK Index Tracking Trust (GB0009304311), the third most popular tracker fund in the UK, you'd end up with £125 after five years. This is £5 less than you'd have if you invested it in HSBC FTSE All-Share index Fund (GB0000438233), which would give you £130 after investing in the same index over the same period.

Read our report on Virgin UK Index Tracking

The disparity is the result of the Virgin fund's expensive 1 per cent total expense ratio (TER), which eats into the profits and makes HSBC FTSE All-Share index Fund's 0.27 per cent charge look very reasonable in comparison.

Jason Hollands, managing director at Bestinvest, said: "The popularity of tracker funds is down to a combination of disillusionment with the record of fund managers being able to add value and an increased focus on costs. Some of these funds clearly do not offer great value for money."

He says moving your money out of these funds and into cheaper equivalent funds is a "no brainer". But if you are doing this you need to watch out for exit fees on funds and platform charges - as these costs could cancel out the benefits of switching from a provider with a high TER to one with lower management fees.

Ben Seager-Scott, senior research analyst at Bestinvest, adds that if you want to capture market beta at low cost, rather than seeking to outperform, you should be looking to pay no more than 0.4 per cent a year in fund fees for a tracker or ETF.

Bestinvest's eight most overpriced popular tracker funds