Mutual funds: costs and commissions

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The different costs of a fund and the KIID

Cost is a key consideration when choosing mutual funds. The costs can be broken down into different types of commissions: an asset-based fee and redemption, administration and performance fees. A mutual fund’s annual recurring charges are listed as an ongoing charge and can include several types of charges. All of this information is stored in the Key Investor Information Document (KIID), the sales prospect, a document that must be given to the investor when they sign. The investor can therefore find all the information necessary to make their choice: the objective and investment policy, the main types of activities, the risk-return profile and any costs envisaged. The way to get as close as possible to the fund’s overheads is to consider a measure called the ongoing charge figure (OCF)1 .

Asset-based fee, sales charge and redemption charge

The so-called asset-based fee (or subscription fee) is the fee payable when subscribing to the mutual fund. However, the policy of the fund can also stipulate that this payment must also be made in the event of later acquisitions. There is no fixed fee for the sales charge: it varies from fund to fund, although it’s usually higher for equity funds. The redemption charge (or redemption commission) is a commission that, for some funds, may be charged to subscribers when they request the reimbursement of their units in a mutual fund.

Management costs and performance fees

Management costs are undoubtedly the most important cost involved when calculating the return: they are based on an annual percentage of the investment, which remunerates the work of the management company and the advisory service and must always be deducted from the result generated. Finally, there are the performance fees, which are calculated based on the results achieved; in this case the calculation can relate to the absolute return, but in some cases to a reference parameter set at the beginning, as well.

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