Charges For Purchasing Unit Trust / Mutual Funds

One of the key decision to make before investing your money in Unit Trust / Mutual Funds is the  charges that comes with it.

Charges for investing into Unit Trust / Mutual Funds are normally in the form of percentage (%) and consist of two types:

1. Initial Sales Charge - once for every time you invest an amount into Unit Trust
2. Annual Expense ratio - incurred annually by deducting certain % of the Net Asset Value of the fund. Deduction is calculated on a pro-rated daily basis and will be deducted from the NAV of the fund at the end of each day before the price of the fund is published. In other words, the Annual Expense ratio is considered already embedded into the pricing of the unit trust fund. For further clarification, I recommend that you read this post on 4 Myths about Unit Trust Investing.

In order to make this post easier to understand, lets make a case comparison of incurred charges between Unit Trust / Mutual Funds and the typical Fixed Deposit offered by the bank.

Type of Charges	Fixed Deposit	Unit Trust / Mutual Fund
Initial Sales Charge	None	0% - 7% (once for every invested amount depending on type of fund)
Annual Management Fee	None	1% - 1.5% annually (depending on type of fund)
Trustee Fee	None	0.06% - 0.08% of NAV (subject to a minimum of RM18,000 per annum)
Annual Expense ratio*	None	1.5% - 2.5% annually

*Annual Expense ratio is the various expenses that a unit trust incurs to keep it running, expressed as a percentage of the unit trust’s net asset value (NAV) per annum and is deducted from a unit trust’s asset on a daily basis before the price of the fund is published. Expense ratio includes annual management fee, trustee fee, administration fee, accounting and valuation fee, audit fee, custodian fee, legal fee, registrar fee, printing and distribution costs and other expenses. Expense ratios for equity funds typically range from 1.5% to 2.5%, and for fixed income funds, the expense ratios typically range from 1% to 1.5%.

From the table above, we can summarized that on the average we are charged with the following:

1. One time "Initial Sales Charge" for each investment made : ranging from 0% - 7%
2. Annual Expense ratio : ranging from 1.5% - 2.5%

While we need not know about the details of the charges, it is important that you make a comparison of charges among funds of the same investment nature. Here's a sample comparison of a few funds of the same investment nature:

Fund Name	Initial Sales Charge	Annual Management Charge	Trustee Fee	Annual Expense Ratio
Eastspring Invesment Asia Pacific Equity My Fund	5%	1.5%	0.07%	1.89%
Hwang Asia Pacific (ex Japan) Infrastructure Fund	5%	1.8%	0.08%	2.26%
Pheim Asia Ex -Japan	5%	1.5%	0.07%	1.68%

The obvious option is to select Pheim Asia Ex-Japan fund as your fund of choice. However, do note that selecting a fund based on the charges is just one of the many criteria of selecting a fund. There are also other considerations such as:

1. Fund historical performance
2. Fund area of investment
3. Fund risk rating

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Cheers and happy investing

MY Investor