Fund Doctor: Your investment fund questions answered
Wednesday, 18 February 2009 01:30
In the first of a series of investor questions on funds, Sheridan Admans, investment adviser at The Share Centre, answers your questions about investment funds.
Email Sheridan at funddoctor@share.co.uk with your query and if your question is featured you will receive a bottle of champagne for your efforts.
John Price from Sussex asks:
Why am I charged more to invest in funds than shares?
Sheridan replies:
There are two charges applied to funds by fund houses; an Initial Charge applied when the fund is purchased, and an Annual Management Charge (AMC), which is charged on an annual basis by the fund via an adjustment to the unit price.
The initial charge is often around 3 to 5 per cent depending on the fund and the management style and asset class managed.
Your IFA or broker may be able to negotiate a lower initial charge for you - sometimes down to zero. However, this discount may not always be passed on as it may make up part of your IFAs' or broker's incentive package. It is always worth checking their charging structure first.
As for the AMC this is much harder to reduce as it is levied by the fund manger to cover the costs of management fees, advertisement costs, administration costs and other ad-hoc and performance fees, which are accrued in the course of the professional management of your investment.
Paying this fee does not only provide the benefits of a manager's experience of a market, asset class and region, it also covers the costs of other market professionals and data that allow the manager to make informed decisions. The manager is a paid professional who studies and watches the market consistently throughout the trading day so you don't have to spend your valuable time selecting, researching and monitoring your portfolio, which should hopefully provide you with more leisure time.
The charges applied are also relative; the manager of an equity fund may hold 60 investments in various companies to provide a high level of diversification. The time spent purchasing individual equities, researching them and all associated brokerage fees could far outweigh the overall AMC applied by a fund.
Email Sheridan Admans from The Share Centre at funddoctor@share.co.uk with your questions.
Unfortunately The Share Centre is unable to answer MyFinances.co.uk customer questions that constitute personal advice. Customers of The Share Centre seeking individual investment advice can register to join our Advice service for no additional charge at www.share.com. The Share Centre is a member of the London Stock Exchange and is authorised and regulated by the Financial Standards Authority (FSA).
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