Facts about funds

Investment charges and costs

There are regular charges for holding a fund. These “ongoing charges” are used to pay for the running of the fund. Some funds may also apply one-off charges to your investment, or performance fees if the fund manager outperforms. All have to be disclosed to you before you invest.

There are also trading costs incurred for buying and selling assets. Trading costs are a necessary cost of investing and are paid separately out of the fund.

What are the different types of charges?+

One-off
Regular deductions from the fund

What are the charges for?+

One-off
  • An entry charge 
    • May be taken from your money before it is invested.   From 1st January 2013, does not include commission to advisers, but platforms and execution-only brokers may take a percentage. 
  • An exit charge
    • May be taken before the proceeds of your investment are paid out.  Very few funds will have an exit charge. 
Annual deductions from the fund

Ongoing charges are used to pay for:

  • Financial advice
    • Paid to your financial adviser on funds purchased based on advice received before 1st January 2013.    
  • Administration
    • Customer servicing
      • Keeping a record of your investment
      • Paying any income due to you
      • Sending progress reports to you
      • Telling you how much your investment is worth
    • Operating the fund
      • Maintaining fund accounting records
      • Valuing the fund assets
      • Calculating the daily unit price
      • Producing reports
      • Complying with investment rules
  • Investment management
    • Research into deciding where to invest and which assets to buy and sell
  • Independent oversight
    • Depositary / trustee oversight
    • Safe-keeping of the fund's assets
    • Auditor's fees
    • Regulators' fees 
Performance fees

Less than 100 out of a total of about 2,500 UK funds have a performance fee. They are charged separately as a way of rewarding the investment manager for superior returns or for outperforming specified targets.

 

How much are typical charges?+

One-off
  • An entry charge Where charged can be up to 5%
    • May be taken from your money before it is invested.   From 1st January 2013, does not include commission to advisers, but platforms and execution-only brokers may take a percentage. 
  • An exit charge Up to 5%
    • May be taken before the proceeds of your investment are paid out.  Very few funds will have an exit charge. 
Annual deductions from the fund

Ongoing charges are used to pay for:

  • Financial advice 0.5%
    • Paid to your financial adviser on funds purchased based on advice received before 1st January 2013.
  • Administration 0.15% - 0.4%
    • Customer servicing
      • Keeping a record of your investment
      • Paying any income due to you
      • Sending progress reports to you
      • 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
  • Investment management 0.5% - 0.75%
    • Research into deciding where to invest and which assets to buy and sell
  • Independent oversight  0.01%  - 0.1%
    • Depositary/trustee oversight
    • Safe-keeping of the funds assets
    • Auditor's fees
    • Regulators’ fees

Total (typically) = 1.25% - 1.75%

 

Performance fees Where charged are variable and disclosed separately

Less than 100 out of a total of about 2,500 UK funds have a performance fee.  They are charged separately as a way of rewarding the investment manager for superior returns or for outperforming specified targets. 

Where to find information about fund charges

Most funds are subject to the “UCITS” rules, which are set out under detailed EU legislation.  This includes a requirement to give new investors a Key Investor Information Document (KIID).  This provides important information about funds, including charges.  See a sample charges table in a KIID

Some funds may be non-UCITS funds; these are subject to FCA rules, which are very similar to those for UCITS funds, but allow investment in different types of asset.  Property funds are an example.  These funds may provide you either with a KIID, a Simplified Prospectus or a Key Features Document.

The Simplified Prospectus will show you the annual cost of operation of the fund as a Total Expense Ratio (TER) (which is effectively the same as the OCF for UCITS funds except that it also includes any performance fee paid in the previous year) and the one-off charges. Funds that opt to provide a Key Features Document must show the TER together with what is known as a Reduction in Yield figure.

The IMA have issued voluntary industry guidance on enhanced disclosure of charges and costs incurred by UK-authorised funds. The additional information outlined in the guidance complements current European regulatory requirements with the aim of providing investors with easier access to information on fund charges and costs.

See which firms provide enhanced charges and cost disclosure