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Fund charges and costs

charges

There are two main types of fund charges: one-off charges and regular/annual charges. All charges have to be disclosed before you invest.

An entry charge of up to 5% may be taken from your money before it is invested. Since 1 January 2013, it may not include commission to advisers, but platforms and execution-only brokers may take a percentage.

An exit charge of up to 5% may be taken before the proceeds of your investment are paid out. Very few funds have an exit charge, and they are usually in place of an entry charge.

Regular charges

Ongoing charges are used to pay for the running of a fund, which includes the costs below.

Financial advice
Paid to your adviser on funds if they were bought based on advice received before 1 January 2013
0.5%
Administration
Customer servicing:
  • Keeping a record of your investment
  • Paying any income due to you
  • Sending progress reports
  • Telling you how much your investment is worth
Operating the fund:
  • Maintaining fund accounting records
  • Valuing the fund’s assets
  • Calculating the daily unit price
  • Producing reports
  • Complying with investment rules
0.15% – 0.4%
Investment management
Research into deciding where to invest and which assets to buy and sell
0.5% – 0.75%
Independent oversight
  • Depositary/trustee oversight
  • Safe-keeping of the fund’s assets
  • Auditors’ fees
  • Regulators’ fees
0.01% – 0.1%
Total (typically) =1.25% – 1.75%

Performance Charges

Performance fees are variable. They are charged separately as a way of rewarding an investment manager for excellent returns/outperforming targets. They are relatively unusual: fewer than 100 of roughly 2,500 UK funds have a performance fee.

Trading charges

In addition to fund charges, there are trading costs for buying and selling assets. Trading costs are a necessary cost of investing and are paid separately out of the fund.

Charging rules

Most funds are subject to UCITS rules, which are set out under EU legislation. They require new investors to be given a key investor information document (KIID), which provides important information about funds, including sample charges.

Some funds, such as property funds, may be non-UCITS funds. These are subject to Financial Conduct Authority rules, which are similar to UCITS rules but allow investment in different types of asset. These funds may provide you with a KIID, a simplified prospectus or a key features document.

The Investment Association has issued voluntary industry guidance on enhanced disclosure of charges and costs. This complements European regulatory requirements and aims to provide investors with easier access to information on fund charges.