- Sales charge, typically 3.21% (theoretically can charge up to 5% according to most fund's prospectus)
- Annual fees, around 1%. This is usually chargeable at 0.25% per quarter, based on portfolio value.
The above fees are applicable for investment in unit trusts. How the sales charge works is that if you invest $100 in a fund, only about $97 is used to buy into the fund, and the remaining amount is the commission. For the ongoing annual fees, the amount is paid by selling the units of the best performing fund in one's holdings, executed automatically by the system every quarter. The rationale behind these fees is to remunerate the team of analysts who are doing research behind the scenes, so that your advisor can advise you accordingly on what or when to buy or sell. Therefore to justify paying those fees, the outperformance of your portfolio should outweigh the total amount of fees paid. I feel is a matter of personal preference if one wants to put his/her trust in such a system.
So how much does are those fees in absolute terms? I came up with the following scenario to have a clearer idea. Say an investor who invests $600 monthly for 14 years, in a fund which grows steadily 339% of its original value (approx 8.5% annualised gain, actual performance of a real life fund).
Below are the numbers at the end of 14 years if there are no charges of any kind at all:
Total amount invested: $105,000
Portfolio value: $205,716
Profit: $100,716
If there is a 3.21% sales charge payable, the profit would be reduced by $6,603 to $94,112.
If there are both sales and annual charges, the profit amount reduces by $16,432 to $77,680.
The above translates to paying an average amount of $470 and $1170 annually over the 14 years. Thus, it can be seen the 1% annual fees makes up a much larger chunk of commission compared to the 3% one-time charge.
As I have mentioned, some may find it justifiable to pay such fees while some may not. The above is just an illustration which is meant for individuals to make their own informed decision.
