Why you should care about fund fees

Transaction costs

Why you should care about fund fees

Just like other types of investments, there are associated costs with buying funds. Typically, there are two main types of fees relating to fund investment, namely, transaction fees and ongoing fees.

More transactions, more fees

Transaction fees are charged each time you enter into a fund transaction. These fees are usually paid through a deduction from your principal upfront, e.g. if you invest $10,000 in a fund with a 3% subscription fee, $300 will be deducted as the fee, and only $9,700 will be invested in the fund. (Note)

Some investors may trade funds frequently for different reasons (e.g. to time the market or to capture opportunities in different regions or investment themes). But don't forget that the more transactions you conduct, the more fees you will need to pay and it is possible that your potential investment gains may not be able to cover the transaction costs. For example, assuming the transaction fee is 2.5% of your investment amount, changing the fund once every two months (i.e. six times a year) would mean incurring a total annual cost of around 15% of your investment amount!

Over time, even small ongoing fees can have a big impact on your investment

Ongoing fees (e.g. management fees) will be charged as long as you hold units in the fund. These fees are typically allocated from the fund on a daily basis and deducted from the asset of the fund directly. That means you do not make separate payments as the fees are automatically deducted from your investments.

The ongoing fees reduce the return you get on your investments. For example, assuming you invest $100,000 and it will earn 6% a year for the next 20 years. If the ongoing fee is 1% of the fund's value per year, you will have a cumulative profit of around $162,000. But if the ongoing fee is 2% of the fund's value per year, your cumulative profit will be $114,000. A one percentage difference in fees in this example can reduce your return by 30%!

Examples of transaction fees and ongoing fees

How do I figure the fees out?

To help investors understand the aggregate level of ongoing fees and to facilitate comparisons between different funds, product issuers are required to disclose an "Ongoing Charges Figure" aggregating all the ongoing fees in the Product Key Facts Statements (KFS).

The KFS is a concise and user-friendly summary of the key features and risks of a product (including all fees). As a regulatory requirement of the SFC, product issuers of funds must provide investors with the KFS. Investors can also download the KFS from the SFC's List of investment products (check the column "Offering Documents").

Sales-related information

In addition, intermediaries (i.e. investment advisers / distributors) under SFC's regulatory regime are required to make certain disclosure to investors when selling investment products. Click here to learn more about the sales-related information that such intermediaries are required to disclose.


Note: The price of a fund is usually quoted in terms of net asset value (NAV) per unit. Fund companies generally deduct the subscription fee from the investment capital before issuing units. Alternatively, if a fund is quoted with bid and offer prices, the subscription fee will be reflected in the price spread.


13 August 2018