Charges

Initial Charge

This is around 5% and is normally imposed when you buy units or shares.

Also known as the 'sales' or 'front end' charge, this figure covers the costs and expenses to be met by the manager. This includes administration, commission, regulation, compliance and advertising costs, for example.

It is worth noting that managers sometimes reduce their standard initial charge for the launch of a fund or other promotional purposes.

Annual charge

Funds also charge an annual management fee (typically 0.75% to 1.5%) to cover ongoing fund management costs and administration.

This can also include annual (sometimes referred to as 'trail') commission. An additional charge of about 0.2% covers any legal, audit, trustee or custody fees incurred on behalf of the fund during the year. This may seem small, but over time can add up to a sizeable sum if the fund does well.

The effect of these costs depends on the size of the fun, the smaller the fund, the bigger their impact.

Fund can also be bought through a discount broker or financial adviser offering a flat fee, which will be cheaper than going through a commission-based IFA. These discount sellers normally offer a no-frills service with only limited or even no advice given.