FEES AND CHARGES

It is important that investors fully understand the fees and charges associated with an investment in a unit trust product. Like all financial services, they are delivered to the investor at a cost.

Before making a decision, the fees, charges and expected return must be considered to assess the pros and cons of investing in a particular unit trust scheme. There are a number of major expense categories, which are borne directly by the customer and come out of her individual account, others that are paid out of the pool of funds.

Initial Sales Charge
The first cost that an investor normally becomes aware of when contemplating an investment in unit trusts is the initial sales charge, or “up-front” charge. This is the fee levied by the manager on the investor to cover the costs of distributing (i.e. selling) the unit trust.

Ongoing Management Expenses
There are management expenses incurred by the manager in managing the fund. The management expenses, which are deducted directly from the investor’s unit trust account, will include management fees, audit fees and administrative expenses involved in operating the fund, and would have a direct impact on the investment return achieved in any one period. The fees might vary between different categories of unit trusts.

Trustee Fee
The trustee shall be entitled to be paid a fee at a percentage of the Net Asset Value of the fund as may be set by the trustee on the advice of the manager and disclosed in the prospectus. The trustee fee shall be paid out from the cash produce in each financial year.

Management Expense Ratio (MER)
MER is derived from the figures of allowable expenses of the fund, which are fees for the manager, trustee, auditor, legal fee, cost of sending reports to unit holders, issuing of distribution warrants and other direct costs relating to the management and administration of the fund. The MER is calculated as follows: -


Fees of the Fund  recovered expenses of the Fund
 
___________________________________________________________________________________________
x 100
Average value of the Fund for the year calculated on a daily basis
 

Where:

Fees
=
All ongoing fees deducted/deductible directly from the Fund in respect of the period covered by the management expense ratio expressed, as a fixed amount calculated on a daily basis. This would include the annual management fee, the annual Trustee fee and any other fees deducted/deductible directly from the Fund;
Recovered expenses
=
All expenses recovered from/charged to the Fund as a result of the expenses incurred the operation of the Fund, expressed as a fixed amount. This should not include expenses that would otherwise be incurred by an individual investor (e.g. brokerage, taxes and levies); and
Average value of
=
The NAV of the Fund, including net income less expenses on an accrued basis, in respect the Fund of the period covered by the MER, calculated on a daily basis.

 

Do note that a newly launched unit trust scheme will have no MER value. When comparing the performance of a fund over a period of time, a decreasing MER will indicate that the unit trust management company is managing the total fees and expenses well.