rplan always show the Total Expense Ratio (TER) whenever a fund is listed. This gives you a better idea of the costs associated with your investment.
There are a number of components to the cost of running a fund.
| Cost Type |
Breakdown |
Cost range |
Annual Management Charge (AMC)
This is charge normally quoted in the literature of the fund, and is deducted from the fund by the fund manager.
|
| |
Investment Management
This is the element of the AMC kept by the fund manager for managing and administering the fund. |
0.10 - 0.75% |
| |
Ongoing Commission
Also called Trail or Renewal commission, this commission is paid to the adviser or broker that you originally bought the fund through, and is a payment for the ongoing servicing of the investment.
If you purchased the fund directly from the fund manager then it is retained by them.
In some cases, your adviser or broker will rebate some of this commission.
|
0.10 - 0.75% |
| |
Platform Charges
If your investment is administered on a platform such as Fundsnetwork, Cofunds or Skandia, then the fund manager will make a payment to the platform for this service. This is normally paid from out of the AMC. In some cases, however, an explicit platform fee can be charged to you. |
0.10 - 0.40% |
Total Expense Ratio (TER)
The TER includes some other expenses that are charged to the fund, but that are not included in the quoted Annual Management Charge (AMC).
|
| |
Underlying investment charges
This represents the costs of managing the assets that the fund invests in. This is normally only significant in multi-manager funds (where the cost of holding the assets that the fund invests in are high). |
0.10 - 0.75% |
| |
Other Expenses
There are a variety of other expenses that can be charged to the fund e.g. registration fees, depositary fees, custody fees, audit fees, FCA fees, price publication fees and report and account production costs. |
0.10 - 0.30% |
Trading Costs
There is a trading cost each time the fund manager buys or sells an asset in their fund. The trading costs can be estimated from the Portfolio Turnover Rate (PTR) which loosely represents the percentage of the fund's holdings that have changed over the past year.
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| |
Trading costs
This includes the stamp duty and dealing costs of all the purchases and redemptions made by the fund manager.
For a multi-manager fund this could be as high as 2% of the assets bought or sold.
For equity funds, the figure would be approximately 1.4%, and for bond funds 0.3% or less.
If the fund is turning over a significant portion of its holdings (as represented by the PTR), this could prove a significant drag on the fund performance. These costs may be offset by good returns. |
0.2% - 3.00% |