Examples of transaction fees and ongoing fees
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13/08/2018

Examples of fund transaction fees and ongoing fees

Fund
Transaction costs

(1) Transaction fees

Subscription fee
  • The fee you pay when you purchase a fund (typically deducted from the investment amount and paid directly to investment advisers / distributors).
  • It may vary with different types of funds, investment amount, promotional offers, etc.
Switching fee
  • The fee you pay when you take money out of one fund and put it in another within the same fund company.
  • Some fund companies waive this fee if the switching is made within the same umbrella fund.
Redemption fee
  • The fee you pay when you sell the fund.
  • Not many fund companies charge redemption fees in Hong Kong.

 

(2) Ongoing fees (deduct from the fund's asset)

Management fee
  • The fee paid to the fund manager for the fund management service.
  • But a portion of this fee will typically be paid out to the investment adviser / distributor who sold you the product by the fund manager as trailer fees.
Custodian fee
  • The fee paid to the custodian for the custody service.
Performance fee
  • The fee paid to the fund manager for generating positive return.
  • Not many funds charge performance fees in Hong Kong.
Administration fee
  • Expenses relating to fund administration and operation.

An example – How much are the total fees paid and where do the fees go?

Scenario: Mr Chin invests $10,000 in Fund A, and then switch to Fund B after one year. He continues holding the investment and redeem it at the end of the 5th year. Assume the investment gain is 6% per year over the whole investment period. How much are the total fees paid and where do the fees go?

How much are the total fees paid and where do the fees go?

Investors should note:

  1. Fees and charges will reduce the return of your investment. In the above example, though the investment gain is 6% per year, the actual annual return is only 3.3% due to the various fees and charges.

  2. The transaction fees and a portion of the ongoing fees are typically taken up by the investment advisers / distributors as commission of selling the investment products to you. In the above example, 69% of the total fees went to the investment adviser /distributor. This may give rise to potential conflicts of interest and affect your own interest.

    Learn more about:

    Commissions on investment products and potential conflicts of interest

    Enhanced disclosure of investment advisers when selling investment products

 

13 August 2018

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