Confusion over charges

hebron

Could you help me understand this please.
http://www.h-l.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/m/m-and-g-recovery-class-x-accumulation/key-features

Why under "charges and expenses" the total figure 1.67% doesn't add up from the rest of the figures.
And
In the other details under the "effects of the deductions"; where do they get the figure 5.20% and 4.30% from, this seems a large deduction if that was it is.

Are these the deductions that will come off my investment per £1000.

Thanks.

G_M

For an explanation, click on the ? to the right of 'Charges and savings'.

turbobob

The "effect of deductions" is quite confusing. My understanding is that it shows the effect of the annual charges (included in the "total expenses" figure) on two assumed rates of growth.

In your example, if the investments grew by 7% a year, the charges would have the effect of reducing the growth to 5.2% a year. If the investments grew by 6% a year, the charges would reduce the growth to 4.3% a year. They don't take account of any discounts HL gives.

dunstonh

Effect of deductions is compounded over the period. So, lets say the charge in the year was £100. They would add 7% to that. They do this each year.

Its quite a misleading column and there has been talk about removing it. You dont see Tescos having to provide you with cost of their profit on your weekly shop and then compound it by 7% a year to tell you how much you would be better off if you didnt buy any food.

IMO, the focus should be on the charges in a clean simple manner. i.e. initial charges (if any) and annual charges (if any).

EdInvestor

hebron wrote: »

Why under "charges and expenses" the total figure 1.67% doesn't add up from the rest of the figures.

This is the figure for the Total Expense Ratio (TER) a figure which is derived by adding together the fund managers annual management charge plus various other expenses and fees.[In addition to the TER there are also other implicit (ie hidden) charges such as transaction costs like stamp duty, bid offer spread, broker fees, so 'Total' is a bit misleading.]

In the other details under the "effects of the deductions"; where do they get the figure 5.20% and 4.30% from.

The figures of 5.20% applicable to a growth rate of 7% indicates that total charges will reduce your return by 1.8%; at a growth rate of 6% the hit will be 1.7%.

Are these the deductions that will come off my investment per £1000.

Some will be deducted from your money directly, others will be deducted from your fund's return before it gets into your account.

EdInvestor

dunstonh wrote: »

IMO, the focus should be on the charges in a clean simple manner. i.e. initial charges (if any) and annual charges (if any).

But of course these do not tell the full story, more's the pity.:(

dunstonh

But of course these do not tell the full story, more's the pity.:(

nor does adding on 7% a year. However, its easier to understand the charges if you know the base level.

It can also be manipulated potentially. A company using 6% in their illustrations would appear to have lower "effect of deductions" than one using 7%. However, the charges could be identical.

TERs can be misleading as well as you can look at the same fund on different research sites and different fund supermarkets and get different figures. yet its the same fund with the same charge.