You will produce a complete charge sheet for one fund and share class.
If someone asked what your fund costs, could you answer in one number? Most fund holders cannot, and the reason is not that the information is hidden. It is spread across a confirmation, a Product Highlights Sheet, a prospectus, an annual report and a platform's fee page, and each document shows a different piece. In this exercise you bring the pieces together for one fund and one share class.
Use the fund you mapped in lesson 1.4, Trace one fund from your money to its holdings, and the share class you hold or are considering. Wei Ling's Asia equity fund is the worked example again, with figures made up for the example.
Write down three numbers, each with its source.
The sales charge you actually paid, or would pay, not the maximum. Find it on your confirmation or ask the seller in writing. Lesson 2.1, One-off charges: buying, switching and selling, explains why the two can differ. Wei Ling's confirmation shows 2%.
The switching charge, if you might move to another fund. Her bank's fee page shows 1% for switches within the same manager's range.
The redemption charge, if any. Her fund's Product Highlights Sheet shows none.
Next, the costs that come out every year.
The management fee, from the Product Highlights Sheet or prospectus. For Wei Ling, 1.5%. The expense ratio, from the latest annual report. For Wei Ling, 1.75%. Use the expense ratio, not the management fee, in your total, because it already includes the fee. Note the trailer fee range from the prospectus too, but do not add it, because it is paid out of the management fee and is already inside the expense ratio.
Then any yearly fee charged outside the fund, by the bank, platform or adviser: a platform fee, a wrap fee or an advice fee, usually a percentage of what you hold with them. Wei Ling's bank charges none. A platform holding a clean class might charge one. If there is one, add it, because it is not inside the fund's expense ratio.
These are harder to pin down, so record them as notes as well as numbers where you can.
Trading costs inside the fund. Look for the turnover ratio in the annual report and note it. You usually cannot turn it into an exact cost, so write it beside your total instead of inside it. Wei Ling's fund reports a moderate turnover, which she notes.
Currency conversion when you buy. If you pay in Singapore dollars for a class priced in another currency, the bank or platform converts your money at its own rate, and the gap from the market rate is a cost. Wei Ling holds a Singapore dollar class, so this does not apply to her.
A performance fee, which some funds charge when returns beat a stated hurdle. The prospectus explains how it is worked out. Wei Ling's fund has none.
Now turn everything into a single yearly figure, so that you can compare this fund with any other option later. The method is simple. Spread the one-off charges over how long you expect to hold the fund, then add the yearly charges.
Wei Ling expects to hold for ten years, so the course uses a ten-year holding for the comparison. Her 2% sales charge spread over ten years is 0.2% a year. Add the expense ratio of 1.75% and no platform fee, and her total yearly cost is 1.95%. If she expects one switch in those ten years, the 1% switching charge adds about 0.1% a year more, bringing the total to about 2.05%.
Spreading by simple division ignores compounding and is not exact. That is fine for this purpose: the aim is a figure that puts different funds and channels on the same footing. Lesson 7.3, Model one-off and yearly costs together, builds a more exact model for the comparison at the end of the course.
Wei Ling's finished sheet fits on one page. It has three short sections, one-off, yearly and variable, with each line showing a number, its source document and the date she checked it. At the bottom is one line: total yearly cost over a ten-year holding, 1.95%, or about 2.05% with one switch, plus a note that trading costs are extra and turnover is moderate.
She was surprised by how close to 2% a year it came. When she bought, she had thought of the fund as costing a 2% sales charge, once. In the activity below you will fill in the charge sheet for your own fund and arrive at your own single number.
Fill in the charge sheet template for one fund and write the total yearly cost as a single percentage.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).