investment fund charges

angiestar

I have been looking into investing a sum of money into an income generating fund to supplement my pension. I have been to several high street banks and seen thier financial advisors. However I have been surprised by the amount of commission/charges they take out of the capital compared to the interest rate of a normal fixed rate deposits. Eg. 4.6% after charges with Santander Sterling Corporate Bond and 4.5% Saga savings Bond (no charges). Am I missing something? Why would anyone take any risk with their capital when you can get the same rate if not better in a normal savings account?

dunstonh

I have been to several high street banks and seen thier financial advisors.

Not a good idea. They are tied/multi-tied sales reps. That is never the best way to get advice.

Am I missing something?

Yes.

1 - Commission or fee is not pure income. The cost of admin and compliance is significant. The Lib Dems in the last week have said its too high and expects many IFAs to cease giving advice in its current form as there is too many rule requirements.

2 - Fee is usually cheaper than commission.

3 - use an IFA on fee basis and not a sales rep on commission.

Why would anyone take any risk with their capital when you can get the same rate if not better in a normal savings account?

What makes you think you get the same rate or better with cash? Investment returns are variable and will zig zag at times in value but typically over the long term you expect to outperform cash.

Rollinghome

angiestar wrote: »

Am I missing something? Why would anyone take any risk with their capital when you can get the same rate if not better in a normal savings account?

Not an awful lot. Due to the generally high annual charges relative to the return, the return on corporate bond unit trusts tends to be pretty dismal - even if you avoid that initial charge.

The total return for the UK corporate bond sector over the last 5 years has averaged around 2.5% pa even without counting any initial charges and even with the recent big gains. Many have done much worse such as the Gartmore and AXA corporate bond funds which both lost 9.5% over the last 5 years and most corporate bond unit trust funds lost around 15% in the general fall two years ago. Through much of that period you could have earned 6% and more in an ordinary savings account.

The answer to your question is probably because a lot of people make an awful lot of money from selling them.

Jake'sGran

Have a look at Fidelity and M&G. I believe they offer funds for investors who wish to have extra income.

yelf

Jake'sGran wrote: »

Have a look at Fidelity and M&G. I believe they offer funds for investors who wish to have extra income.

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THere are other alternatives, such as Aegon internationals Secure lifetime income product which has a guaranteeed income with potential locked in growth.