Difference between fund classes?

newfoundglory

I currently have an ISA with cavendish. Currently paying small amount per month into a hsbc ftse 100 tracker.

i'm looking at adding more funds, and i'm slightly confused between funds which have the same name.

For example, i was looking the henderson strategic bond fund. there seem to be three choices:
- Henderson Strategic Bond Fund (TER 1.45%)
- Henderson Strategic Bond Fund I Inc Net (TER 0.68%)
- Henderson Strategic Bond Fund I Acc (TER 0.68%)

Presumably i should choose the accumulation option with TER of 0.68%. But why is there a fund with a TER 1.45% ?

dunstonh

But why is there a fund with a TER 1.45% ?

That one is the standard retail version for use on bundled retail. (where the advice charge, platform/distributor charge and fund charge are all bundled into one)

The I version is the clean priced version. These are normally available only on platforms that charge explicitly as there is no cost of retail bundled into that price.

There is also a gross and net version for use inside and outside of the ISA and an institutional class for very large investments.

Presumably i should choose the accumulation option with TER of 0.68%.

It depends on your chosen platform. Firstly, it may not be available if you are on a bundled platform. Secondly, if you are on an unbundled platform, the rebates on the retail fund can make the net position of the fund cheaper than the clean priced fund.

newfoundglory

thanks - after checking it seems that many "clean" funds on the platform are subject to something like a 0.25% fee. As you say, after rebate, the retail funds work out at basically the same price or cheaper. With that in mind I will probably stick with retail funds in case the platform fee changes.

dunstonh

If the retail funds are being held outside of ISA or pension then remember to factor in the tax that will apply.

Daniel_Elkington

Some funds take their charges from the dividend they pay out so the tax position. This one doesn't (you can tell by looking at the dividend from both share classes - if the more expensive one pays less income then they are taking their fees from the income.)

With the retail share you have to pay tax on the rebate as it is classed as a distribution from the fund (which it is essentially). As this one has 60% or more bonds then this will be income tax (20/40/45) rather than dividend income (10/32.5/37.5).

This basically means that if this fund is in ISA then you can get the rebate for free!

Looking at trustnet the clean share class is priced at 0.72% TER - maybe the pricing you have is old and hasn't factored in the management costs from the last review?

Looksie: http://www.trustnet.com/Tools/PDFViewer.aspx?url=http%3a%2f%2fdocuments.financialexpress.net%2fLiterature%2f9901283.pdf%3ffundCode%3dHEEINC%26univ%3dO

If you are worried about the platform fee changing I'd be more worried about the investment house telling Cavendish they wont be continuing the rebate levels already agreed.

Tonnes to think about...

Cavendish

Hello, this is an official response from Cavendish Online.

The first fund that you mention is the ‘A’ class income version, this is a bundled fund.
The TER is 1.45%. Included in this, 0.25% is the service fee and 0.50% is the trail commission. If you hold this fund via Cavendish Online we will arrange to rebate 100% of the trail commission back to you. Therefore the ‘net’ TER will be 1.45% – 0.50% = 0.95%.

The second and third funds are the ‘I’ class income and accumulation versions respectively. These are unbundled funds.
The TER is 0.68%. As these are unbundled funds there is no trail commission included in the TER, therefore nothing to be rebated to you. However there is an additional Service Fee of 0.25%. Therefore the ‘net’ TER will be 0.68% + 0.25% = 0.93%.

For your information, we are in the middle of modifying the Cavendish Online website so that the service fee on the unbundled funds is clearly identified on our Fund Research pages. This should be available very soon.

You should always make sure that you check the charges on all different classes of a particular fund. In the above example the unbundled funds are cheaper than the bundled, but that is not always the case.

Many thanks,

Cavendish Online