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How to decipher the costs of investing in unit trusts

by , 17 April 2015

When you invest in shares on the stock market, you need to pay a stock broker fees and commission for his services.

When you invest in unit trusts, you also have to pay fees. There are two different types of fees you'll have to cough up.

Read on to find out more…


The initial fees of investing in unit trusts


As with other financial products, investing in unit trusts comes with costs. After all, those providing a service have to make money from this.

When you first invest in a unit trust, you have to pay an initial fee. There are generally two types of initial fees you may have to pay…

Initial administration fee
Depending on the fund, in some instances, as long as you invest a minimum amount into the fund, you don’t have to pay this.

Initial advisor fee
If a financial advisor has helped you to select a unit trust to invest in, you’ll have to pay them a percentage fee for this advice. It’s worthwhile trying to negotiate on this fee as you may be able to reduce it.


The ongoing costs of investing in unit trusts


There are typically two types of ongoing costs that you may have to pay…

Annual service fee
All unit trusts charge this fee. This includes the costs of running the funds and any administration costs. This tends to be a set percentage amount charged per annum.

Performance fee
Depending on the fund, you may also have to pay a performance fee. This means if the unit trust performs above a certain level, you’ll pay a performance fee. This may be on a sliding scale.


Where to find out the fees a unit trust charges


All fact sheets list the costs and fees involved for each particular unit trust. By checking this, you can see whether there are any performance fees payable.

You can also check a fund’s TER (total expense ratio) on its fact sheet. This shows you the costs of the fund relative to its assets.

So there you have it, how to decipher the costs of investing in unit trusts.

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How to decipher the costs of investing in unit trusts
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