How to Find Out Fund Charges?

bonzer

Hi,

I've got an investment in a FTSE 100 index tracking fund (in an ISA) which I want to switch to another provider as I think my current one (Abbey) are too expensive.

However I'm having problems figuring out what various fund managers really charge which can be wildly different. I'm looking for a simple question I can ask to each fund management company to find out what their tracker fund actually charges in total so I can pick a low one.

Asking for the "Annual Management Charge" doesn't seem to tell the whole story as there seem to be "other charges" as well which makes it difficult to compare costs. For example with M&G's all-share tracker fund the other charges seem to be a large part of the cost of the fund compared with the headline annual management charge alone. With L&G's all-share fund the other charges seem to be negligible and the headline management charge is most of it.

So someone told me to ask for the "Total Expense Ratio". When I asked Abbey (because I'm not totally sure what they charge - I think 1%) they told me that it was my problem to calculate the TER and they don't tell me that and were frankly quite rude. M&G did come up with a figure and were more helpful.

So, does anyone know a simple question to find out the full charges of an index tracker fund please so I can objectively compare them? Am I on the right track with the TER? Should Abbey have been able to tell me or was I wrong?

With Thanks

Bonzer

oldfella

TERs are here - http://www.investmentuk.org/investors/find_fund/default.asp

dunstonh

You should also reconsider your investment strategy.

Single fund investing is old fashioned and results in lower returns over the long run. Especially when you end up picking one of the worst performing indexes in the western world (such as the FTSE100).

There is little point saving 0.2% year in charges when its costing you 5% a year in performance.

bonzer

Thanks for the advice, maybe I'll look at other indicies, but for the time being I think I'll stick with the UK market be it the 100 or all-share. I'm looking for a cheap "no brainer" investment for the long term where I can invest in small regular amounts and forget about it. I'm not really the wheeler dealer type and don't really want to have to keep a hawk eye on the markets all the time to switch between investments.

But either way, am I on the right track in thinking that TER is the best way to compare charges between index tracking funds?

Thanks

Bonzer

jamesd

TER is the best way to compare charges yes. Using only a little more time you could instead choose:

1. a UK multi-manager fund, so the manger picks the best funds in a particular market, so you don't have to do it yourself. You pay more but it's worth it if you want to ignore it.
2. a global growth fund, for more risk but more growth potential. Again, the manager moves the money around to try to achieve the best results. It'll go up and down more than the UK but it should do better overall.

Better, a couple of each in case one does poorly for some reason.

For even less work, it may not be the best, but it's not too bad, take a look at the Chelsea Easy ISA (more detail) and pick one of their pre-built packages. Aggressive Growth seems like a fair match to your current risk level and either it or Balanced Growth should do better than a UK tracker. Minimum of 200 a month for this, though.

Or you could say how much you have invested already and how much you're adding because it might be enough to make it worth having an IFA look after it for you. People using the same remuneration model as dunstonh are quite inexpensive compared to the benefits they deliver for those who want to ignore things.

EdInvestor

For a more transparent approach on charges you may like to look at the new "exchange traded funds" (ETFs) provided by Ishares.These are a tracker but in the form of a listed share.

https://www.ishares.net.

The ETF charges are lower than the funds' TERs, and they pay out the full dividend (after deducting the AMC).

There is a big range of ETFs now, covering a lot of markets. The IUKD (UK FTSE dividend tracker) is worth a look, it's likely to be a good performer .

The discount broker Selftrade have a very good deal for those who want to invest in ETFs in an ISA. They charge no commission on purchases (so it's no problem reinvesting the dividends) and there's no stamp duty to pay.

If you get referred by an existing customer (check the MSE referral board) you will get 50 quid, which will pay 2 years' ISA fee.

dunstonh

invest and forget investments tend to underperform. Fund of funds are more expensive but are designed for the invest and forget investor as they handle asset allocation and fund selection at fund manager level, meaning you dont have to. However, because someone else is doing it, you pay higher charges to cover the extra work.

This is purely an example but after charges and over the last 5 years (to 30/11/06) £5000 invested would be:

Jupiter Merlin Income Portfolio £7792
L&G FTSE 100 Trust £6224

So, you would have paid more in charges with the FoF but you would be over £1500 better off.

You invest to make money. Not save money on charges. Charges are not the primary concern but a secondary concern. How and where it is invested should be the primary concern.