Annual Management Charges

wombat42_2

At what point are annual mangement charges for unit trusts paid ? Are they paid once a year or is the payment spread out into small daily payments ?

dipsomaniac

the annual management charge is paid to the fund manager via the funds income account on a 6 monthly or annual basis (may even be monthly or quarterly but can't remember). However, the important bit is that the charge is accrued on a daily basis by the fund, so each day the funds price will reflect 1/365.25 of the amc.

wombat42_2

dipsomaniac wrote: »

the annual management charge is paid to the fund manager via the funds income account on a 6 monthly or annual basis (may even be monthly or quarterly but can't remember). However, the important bit is that the charge is accrued on a daily basis by the fund, so each day the funds price will reflect 1/365.25 of the amc.

Thanks but surely "1/365.25 of the amc" takes no account of compounding. If that is true it is a sneeky way of screwing the punter for extra money and makes the stated AMC value to be inaccurate.

dipsomaniac

the amc is calculated on the fund value each day. so if the fund value today is £100 and the amc is 1% the fund price would reflect a charge of 0.3p (1/365.25) x 100. if the fund value tomorrow was £150 the charge would be 0.4p. the annual total of these charges would be the actual amc paid to the fund manager.

if the fund is pricing on a daily basis it has to accrue all charges daily otherwise the price would be more volatile.

barak

wombat42 wrote: »

At what point are annual mangement charges for unit trusts paid ? Are they paid once a year or is the payment spread out into small daily payments ?

Why are you worried about this? It's much more important to find one or more of the managers who, hopefully, can regularly outperform their benchmark!

EdInvestor

Wombat42 is quite right to be worried about the underlying charges which are much larger than advertised.

He will eventually come to the view that it's much more sensible to hold shares directly.

dipsomaniac

i don't agree edinvestor. the charges are clearly documented in the terms and conditions.

you would need to be a very experienced investor with a lot of spare time to hold shares directly. You would also need a large lump sum to build a diversified portfolio.

wombat42_2

dipsomaniac wrote: »

i don't agree edinvestor. the charges are clearly documented in the terms and conditions.

you would need to be a very experienced investor with a lot of spare time to hold shares directly. You would also need a large lump sum to build a diversified portfolio.

Yes but the real alternative to unit trusts are investments trusts.

dipsomaniac

yes, investment trusts are an alternative to unit trusts. they are more volatile due to gearing and the fact that they are closed funds.

wombat42_2

dipsomaniac wrote: »

yes, investment trusts are an alternative to unit trusts. they are more volatile due to gearing and the fact that they are closed funds.

Yep I have done Investment trusts before and appreciate that they are a tad more risky than unit trusts. They tend to slightly outperform a unit trust in a rising market.

To ask an idiot question. I now have a unit trust ISA/PEP with HL. If I so wished, presumably I could switch in whole or in part to an investment trust if one catches my eye ?

dipsomaniac

yes, you can switch form ut to investment trust with hl. i think you would have dealing charges going into the investment trust.