Basic investment fund charges question

caliston

Say you have a fund that says:

Total Expense Ratio: 2%

Trailing Returns 30/9/2007:
YTD 5%
3 Years Annualised 20%
5 Years Annualised 15%
10 Years Annualised 5%

Do these return figures normally include the annual management charges or not? So is the 10 year return 5%pa or 3%pa after charges, or is it something else (because of compounding)? If you look at the little chart provided by research sites, does that include the charges? Presumably for accumulation funds it includes dividends?

Also, if I invest some money in the fund today, when are the charges taken? Now, a year from now, on some specific date (like 6th April), or spread across the year?

Cheers,

Aegis

From what I can remember, the returns are calculated from what you can actually buy and sell the fund units for. As such, they would have to be inclusive of AMC, making your 10-year annualised return 5% rather than 3% (which still sounds pretty low to me!).

I believe that charges are included in the daily calculations, so at no point should you suddenly see a devaluing of your investment. If there was such a date, I imagine people would work out that getting out a few days before and back in a few days later would avoid those costs!

dunstonh

annual management charges at normal retail price are including in the figures. Indeed, you could say the returns are after TER as they are the returns after all annual charges are considered.

Initial charges or bid/offer spread are not usually. You normally see the performance charts say that performance is on bid-bid basis (or offer-offer basis) as part of the qualifying print or key.

Presumably for accumulation funds it includes dividends?

accumulation funds dont pay dividends. The unit price reflects the value of the dividends/income received by the fund.

It would depend on the quality of the research site or software as to whether income units are reinvested or not. The software I use gives me the choice but most consumer sites assume it is reinvested.

caliston

Thanks, that makes sense. It goes tend to defeat one of the arguments of those who favour trackers, being that managed funds might perform well but have lots of extra charges you don't see - but if the charges are included then WYSIWYG.
They may have a point with upfront charges - initial fee (minimal with a funds supermarket) plus bid/offer tend to be higher with managed funds - but at least they don't compound.

EdInvestor

Are the implicit charges (transaction costs including brokers fee, stamp duty, impact of trade) excluded, as well as bid offer spread? The total of these varies depending on portfolio turnover, but typically they double the AMC.

dunstonh

Performance figures include everything except initial charges or bid/offer spread. They do not just work on AMC but work on real return.

WYSIWYG is the idea minus the buying costs. You dont want buying costs included as you may already hold the stock/fund and as you say, different distribution channels give different initial charges.