Initial charge on funds

yatinsardana

I'm with HL and I find that you don't have to pay the initial charge on most of the funds. However, if I do want to invest in a fund regularly how does the initial charge work.
Say it's 1% and I want to invest £50/month. Am I just paying 50p initially and from there on, only the AMC.
If that's the case, then if I truly wanted to invest say £200/month, can I start by investing £50 (and pay 50p initial charge) and then move onto £200/month next month onwards to save the extra charge?

Also speaking of charges on funds, I know this is basic stuff but - say a funds TER is 1% and HL charge you .45% for holding funds so total is 1.45%. Now if you invest £100/month for 12 months, does this mean that I will pay a total of 1.45% of 1200 by the end of the year or will I pay 1.45% of whatever my fund is worth by the end of the year (so I'm essentially paying on my gains too). I ask this because presumably it would make a big difference after so many years when your holding in a fund is quite huge and paying 1.45% of the capital invested will be significantly smaller than 1.45% of what the holding is now worth (assuming your fund does well)

Vortigern

yatinsardana wrote: »

Say it's 1% and I want to invest £50/month. Am I just paying 50p initially and from there on, only the AMC.

No such luck. If there is an initial charge of 1%, it will apply to every incoming payment you make.

Also speaking of charges on funds, I know this is basic stuff but - say a funds TER is 1% and HL charge you .45% for holding funds so total is 1.45%. Now if you invest £100/month for 12 months, does this mean that I will pay a total of 1.45% of 1200 by the end of the year or ...

No. You'll pay 1.45%/12 of £100 for the first month, 1.45%/12 of £200 for month 2 etc.

yatinsardana

Vortigern wrote: »

No such luck. If there is an initial charge of 1%, it will apply to every incoming payment you make.

No. You'll pay 1.45%/12 of £100 for the first month, 1.45%/12 of £200 for month 2 etc.

Ok that's put me in a bad mood! :P
It appears that funds with initial charges are therefore not good for regular monthly investments. I suppose you can "save money" and then invest quarterly or semi-annually if you still want to make regular investments but still - I mean 1% on top of AMC and platform fees - it all adds up!
Vanguard lifestrategy charge .16% which I suppose isn't a lot and taking into consideration that their TER is 0.33% - I guess that's ok.

With regards to calculating the 1.45%, I think it makes sense in my head now. I'm just going to put in some numbers onto excel and see how much I will end up paying according to your calculation.

Funds are expensive

le_loup

Sorry, a fund with initial charges cost the same whether you invest monthly or with a lump sum. It's, say 1% of 5x£50 or 1% of £250

yatinsardana

le_loup wrote: »

Sorry, a fund with initial charges cost the same whether you invest monthly or with a lump sum. It's, say 1% of 5x£50 or 1% of £250

Oh yes ofcourse, yeah that makes sense. Silly me.
So there's just no way around it.
Thanks

Doshwaster

yatinsardana wrote: »

Ok that's put me in a bad mood! :P
It appears that funds with initial charges are therefore not good for regular monthly investments. I suppose you can "save money" and then invest quarterly or semi-annually if you still want to make regular investments but still - I mean 1% on top of AMC and platform fees - it all adds up!

Yes, but bear in mind that on many funds HL will refund most, if not all, of the initial charge so there are effectively no charges with many of the funds.

I put £50 in each of 4 funds with HL on a monthly basis plus the occasional top up when I have some spare cash and I don't pay any initial charges at all.

yatinsardana

Doshwaster wrote: »

Yes, but bear in mind that on many funds HL will refund most, if not all, of the initial charge so there are effectively no charges with many of the funds.

I put £50 in each of 4 funds with HL on a monthly basis plus the occasional top up when I have some spare cash and I don't pay any initial charges at all.

Yeah I noticed that. I think HL refund in majority of the cases - there are some where they don't and I just wanted an idea as to how much I'll be paying if there were an initial charge. It seems like I'm better off sticking with funds where initial charge is refunded or those where the charge isn't refunded but is very low (e.g. VLS).

NB - There are some with over 5% charge that isn't refunded! I'm very curious to meet someone who's actually paying that amount e.g. Marlborough Nano-cap growth has a 5.25% initial charge! Insane

Doshwaster

yatinsardana wrote: »

NB - There are some with over 5% charge that isn't refunded! I'm very curious to meet someone who's actually paying that amount e.g. Marlborough Nano-cap growth has a 5.25% initial charge! Insane

And that fund has an initial minimum investment of £100,000. I don't think I'll bother. Most funds have a minimum of £500 then £50 ongoing monthly.

And here's why it has such a large fees and minimum investment: http://moneyweek.com/money-morning-investing-in-nano-cap-stocks/

yatinsardana

Doshwaster wrote: »

And that fund has an initial minimum investment of £100,000. I don't think I'll bother. Most funds have a minimum of £500 then £50 ongoing monthly.

And here's why it has such a large fees and minimum investment: http://moneyweek.com/money-morning-investing-in-nano-cap-stocks/

Aaaaah.. makes sense. Thanks.

le_loup

You will probably find that those funds are "soft closed", i.e., they don't want new money added because they are too big. Some specialist funds have a restricted marked therefore, if the fund grew too large they have nowhere to invest it without getting too large a slice of the underlying investments.