Some are paying up to 16 times more than they need to for passive investment even though many passive providers have slashed rates this year.

The most expensive passive fund in the UK All Companies sector carries an OCF (ongoing charges figure, the most accurate measure of how much it costs to invest in a fund) of 1.43%, compared to 0.06% for the cheapest, a study by Square Mile Investment Consulting and Research found.

It also found 12% of passive assets in the UK All Companies sector are invested in five funds with OCFs of 1% or higher.

The five funds are: Scottish Widows – UK Tracker, Virgin – UK Index Tracking, Halifax – UK FTSE All Share Index Tracker, Halifax – UK FTSE 100 Index Tracking and L&G – (A&L) Capital Growth.

If these funds reduced their charges to a standard 0.3%, the companies which run them would lose some £46m in revenue, the research said.

“The asset management industry has taken steps to lower charges for their passive funds to reflect a more competitive market, and this is to be applauded.  Nonetheless, there still remains great disparity and given that the opportunity for passive funds managers to reduce tracking error and thereby enhance returns is limited, there can be no justification for maintaining high fees,” said Square Mile head of research Victoria Hasler.

Active funds also came under scrutiny from the research as only 21 of the 209 active funds in the UK All Companies sector have OCFs of under 0.75%.

The vast majority – 130 funds – carry OCFs of between 0.7% and 1%.

Hasler said: “Fund management charges is a thorny subject and the asset management industry has faced stiff criticism in recent years: in some cases this criticism is justified.

“However, we believe investors should first consider what outcome they wish to achieve from their investments – whether that’s to grow their savings or draw an income.  They then should assess which asset managers have the ability to meet their requirements and balance that ability against the charges levied.

“Nonetheless, we welcome a greater emphasis on providing value for money, and as with all other areas of life, this should always be an important consideration when selecting investments.”