What Unit Trusts
What Unit Trusts Really Cost
The cost of investing is an issue, there’s no question.
When every dollar of cost is an investment dollar lost, a sensible investor should keep watch on the ongoing cost of owning a unit trust.
This cost is known as the “expense ratio” and is found in the annual and semi-annual report of a unit trust.
So what exactly is the expense ratio and what are unit holders paying for?
The fund manager’s annual management fee covers a range of services including investment, portfolio management, operations, marketing and compliance costs.
Besides the annual management fee, there are other fees in the expense ratio summarised in Table 1. These fees are paid to parties that ensure investor monies are not mismanaged.
Table 1: Fees and responsibilities
|Fund Manager||Manages funds in line with
|Custodian/Trustee/Registrar||Safeguards and keeps record of unit holder assets and related information||Trustee Fee; Accounting and Valuation Fee; Fund Administration and Registrar Fee; Custody Fee|
|Auditor||Conducts audits on Fund||Audit Fee|
|Tax Agent||Provides advice on tax issues||Tax Agent Fee|
|Lawyer||Drafts fund-related legal documents||Legal Fee|
|Others||Various||Miscellaneous including but not limited to printing and distribution fees, amortised expenses and GST.|
Source: Lion Global Investors Limited as at May 2018.
While cost is a common criticism of unit trusts, not all unit trusts cost the same. Some unit trusts have a managed-cost approach where such ongoing costs are capped at a fixed percentage of invested assets. To illustrate, if this cost is capped at 0.5% a year, investing S$100 would cost S$0.50 a year.
For seasoned investors this is a compelling cost advantage and for new investors this presents an opportunity to start investing with a cap on ongoing costs.
Lion Global Investors Limited (“LGI”) is a company incorporated in Singapore and a member of the OCBC group.
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