Each management company is required to have a Rulebook on Fees and to charge fees and expenses for each fund it manages in accordance with the rules thereof. However, one should know a difference between the fees and expenses management companies charge from investors.
Fees represent a source of income for management companies and they are charged for management services.
The following fees are associated with open-end funds:
• Front-end load (purchase of investment units fee) – this load is charged as a percentage of the investment in a fund (it reduces the amount of the investment, the fee is charged and then the remaining part will be used for purchase of investment units);
• Fund management fee – is an annual fee calculated on a daily basis as a percentage of the assets of a fund;
• Redemption fee – another type of fee, it is charged when a member of a fund whishes to withdraw from a fund and to cash/sell his/her investment units;
Bear in mind, only the redemption fee is legally limited to 1%, all other fees are determined by management companies alone. Closed-end funds charge only the annual management fees since trading of shares is conducted on the regulated market through broker-dealer companies, and the costs are the same as with any trading of shares. The costs charged from the assets of a fund pertain to the costs of securities trading (broker-dealer commissions, Stock Exchange commissions and of the Central Depository fees) as well as custody bank and external audit costs.
Fees and expenses of a fund may significantly reduce the returns realized by investing, therefore it is very important to understand and review carefully the fee tables of the fund you are considering. On the other hand, high fees and costs do not necessarily translate as bad, if they mean highly professional expert portfolio managers manage the fund, and that the fund actively invests, which might lead to very high returns.
Fees represent a source of income for management companies and they are charged for management services.
The following fees are associated with open-end funds:
• Front-end load (purchase of investment units fee) – this load is charged as a percentage of the investment in a fund (it reduces the amount of the investment, the fee is charged and then the remaining part will be used for purchase of investment units);
• Fund management fee – is an annual fee calculated on a daily basis as a percentage of the assets of a fund;
• Redemption fee – another type of fee, it is charged when a member of a fund whishes to withdraw from a fund and to cash/sell his/her investment units;
Bear in mind, only the redemption fee is legally limited to 1%, all other fees are determined by management companies alone. Closed-end funds charge only the annual management fees since trading of shares is conducted on the regulated market through broker-dealer companies, and the costs are the same as with any trading of shares. The costs charged from the assets of a fund pertain to the costs of securities trading (broker-dealer commissions, Stock Exchange commissions and of the Central Depository fees) as well as custody bank and external audit costs.
Fees and expenses of a fund may significantly reduce the returns realized by investing, therefore it is very important to understand and review carefully the fee tables of the fund you are considering. On the other hand, high fees and costs do not necessarily translate as bad, if they mean highly professional expert portfolio managers manage the fund, and that the fund actively invests, which might lead to very high returns.