The Cost of Investing
Most investments carry two charges - an initial charge, when you first buy into a fund, and an ongoing charge. Both are automatically deducted from your investments by the fund manager.
The initial charge is up to 5.5%, and the ongoing charge is usually around 1.5% per year. These charges pay for the cost of managing the fund, and usually also include a commission paid by the fund manager to the intermediary or broker.
rplan has negotiated to remove the initial charge completely on most funds, and rebates at least 50% of the ongoing commission it receives back to you.
Initial Charge
When you invest in a fund an initial charge is normally made by the fund manager. This charge is deducted from your investment and is up to 5.5%.
The initial charge is made up of two elements:
This is paid by the Fund Manager to the platform, IFA or broker that you bought the fund through. If you go directly to the fund manager, it is retained by them
The remaining part of the charge and is kept by the fund manager or platform.
For example, if you invested in a fund with a 5% initial charge through a broker who kept all of the commission available.
| You invest | £10,000 |
| Broker commission | £350 |
| Fund Manager Charge | £150 |
| Actually invested in the fund | £9,500 |
rplan has negotiated to remove all initial charge on most funds on the platform, which represents a significant saving.
Ongoing charge
An ongoing charge of around 1.5% per year is made by the fund manager on your investment. The ongoing charge is made up of three elements:
An ongoing (also called renewal or trail) commission of between 0% and about 0.75% is paid by the Fund Manager to the platform, IFA or broker that you bought your fund through. If you go directly to the fund manager, it is retained by them.
This is an administration fee paid to the platform for administering the investment, and is usually around 0.25%
The remaining part of the charge and is kept by the fund manager or platform.
The ongoing charge is also known as the Annual Management Charge (AMC), which is usually reported as the ongoing cost of investing into the fund. The AMC varies between 0.1% and about 2.75% depending on the fund.
Additional Costs
In addition to the annual charge, there are a number of 'other' ongoing costs that you can be charged (for example marketing or audit costs). The Total Expense Ratio (TER) of the fund includes these additional expenses, and so is a better representation of the true cost of investing into a fund. This is why rplan quotes the TER across the site, rather than the AMC.