Should I Invest in Shares Direct or Tracker Funds or ETFs?
Published / Last Updated on 08/02/2026
There has always been a debate about whether to buy
- Shares direct via a stockbroker or share trading platform.
- Shares via a traditional tracker fund.
- Shares via the newer Exchange Traded Funds (ETF).
Direct Holdings: We hope this speaks for itself; you own shares in companies.
What’s a Tracker Fund? Most pension, investment, insurers, ISA/GIA managers offer ‘managed’ funds that invest in shares listed on stock exchanges in addition to offering ‘tracker funds’ that simply track/mirror a stock exchange index e.g. a FTSE 100 Tracker Fund that you and many others can invest in.
What’s an Exchange Traded Fund (ETF)? Instead of you trading (buying and selling) shares directly (via broker or platform) on stock exchanges, an ETF is a collective fund where you and hundreds of other investors are collectively stock ‘exchange trading’ (buying and selling) together on the stock market.
Whether you buy direct, via a fund or ETF via a Self Invested Personal Pension Plan (SIPP) or personally via a Self Managed ISA or direct/personally or personally via a General Investment Account (GIA), all options can have a share trading platform, whether that is you via direct holdings or inside your SIPP, ISA or GIA.
There are of course tax advantages if you hold shares via a SIPP or ISA, but this video/article is about the most cost-effective route and best opportunity for growth and lower charges.
Ignoring the costs of a share trading platform (as this would be paid by all the above options) and ignoring the time you take in investing direct or the fact that SIPPs, ISAs and GIAs will all have platform fees, in the video, we explore the real costs of the cheapest route to have share exposure (ignoring your time trading or any platform fees).
Let’s look at the FTSE 100 and whether you buy direct or via a FTSE 100 Tracker Fund or FTSE 100 ETF.
- Initial Fees – Buying direct will mean you usually incur 0.5% stamp duty but buying via a ‘Managed’ fund or ETF, will usually mean no initial fees as you will not usually incur stamp duty direct (although it is paid as the fund trades).
- Ongoing Fees – Buying direct will usually mean no ongoing fees as you already own the shares but buying via a ‘Managed’ fund or ETF, will usually mean ongoing annual managements fees (Tracker Fund say 0.23% pa and ETF say 0.10% pa) as the fund manager will be managing the shares inside the fund on your behalf.
|
Year |
FTSE 100 Shares |
FTSE 100 Tracker Fund |
FTSE 100 ETF |
|
|
Amount Invested |
£100,000 |
£100,000 |
£100,000 |
|
|
Stamp Duty |
0.50% |
0.00% |
0.00% |
|
|
Initial Charges |
£500.00 |
£0 |
£0 |
|
|
Net Investment |
£99,500.00 |
£100,000.00 |
£100,000.00 |
|
|
Annual Managemnt Charge |
0.00% |
0.23% |
0.10% |
|
|
Ongoing Charge (assumes |
1 |
0.00% |
0.23% |
0.10% |
|
0% Share Price Growth) |
2 |
0.00% |
0.23% |
0.10% |
|
3 |
0.00% |
0.23% |
0.10% |
|
|
4 |
0.00% |
0.23% |
0.10% |
|
|
5 |
0.00% |
0.23% |
0.10% |
|
|
6 |
0.00% |
0.23% |
0.10% |
|
|
7 |
0.00% |
0.23% |
0.10% |
|
|
8 |
0.00% |
0.23% |
0.10% |
|
|
9 |
0.00% |
0.23% |
0.10% |
|
|
10 |
0.00% |
0.23% |
0.10% |
|
|
11 |
0.00% |
0.23% |
0.10% |
|
|
12 |
0.00% |
0.23% |
0.10% |
|
|
13 |
0.00% |
0.23% |
0.10% |
|
|
14 |
0.00% |
0.23% |
0.10% |
|
|
15 |
0.00% |
0.23% |
0.10% |
|
|
16 |
0.00% |
0.23% |
0.10% |
|
|
17 |
0.00% |
0.23% |
0.10% |
|
|
18 |
0.00% |
0.23% |
0.10% |
|
|
19 |
0.00% |
0.23% |
0.10% |
|
|
20 |
0.00% |
0.23% |
0.10% |
|
|
Total AMCs (Non Cumulative) |
0.00% |
4.60% |
2.00% |
|
|
Net Remaining Investment |
|
£99,500.00 |
£95,400.00 |
£98,000.00 |
|
Average initial charges and ongoing management charges source: Google AI. Straight line annual charge deduction ignoring share price growth and compounded effect of annual charge deductions. |
||||
Should I Buy Direct or Tracker Funds or ETFs?
- Even when not allowing for future share price growth over the coming years (and therefore even higher charges for Tracker funds and ETFs, the result is that over time, holding shares direct is much cheaper than investing via a tracker fund or ETF.
- That said, it takes time to directly buy shares in the right proportions for the index that you wish to mirror/track rather than using a managed tracker fund or ETF tracker.
Managed Tracker Funds and ETFs are convenient but if you have time or are retired or wish to become a ‘professional’, full time investor, then investing direct offers the cheapest route.
