Fees & Charges

The costs of a collective investment scheme (CIS) split into two broad families, and keeping them apart is the single most useful distinction for the exam.

• •ONE-OFF (transaction) charges are paid when you enter or leave the fund: the initial/sales charge on the way in and any redemption/exit charge on the way out.
• •ONGOING (recurring) charges are deducted continuously from the fund's assets while you remain invested: the annual management fee, trustee/custody fees, administration and other operating costs, which together make up the total expense ratio (TER).

One-off charges reduce the amount actually put to work (or the amount you get back); ongoing charges quietly reduce the fund's value every day and are the more important driver of long-term outcomes because they recur.

A key exam point: ongoing charges are already reflected in the fund's published net asset value (NAV) and returns — the investor never receives a separate bill. Entry and exit charges, by contrast, are visible transaction-level deductions.

The initial charge — also called the sales charge, entry charge, front-end load or preliminary charge — is a one-off percentage taken from the money you invest at the point of purchase. It typically compensates the distributor/adviser for advice and distribution.

It can be levied on a bid-offer basis (the offer/buying price exceeds the bid/selling price, the gap being the spread) or, on a single-priced fund, as an explicit percentage deducted from the subscription amount.

Because it is taken up front, only the remainder is actually invested. If you invest 10,000 with a 5% sales charge, roughly 500 is taken and about 9,500 buys units — so the fund must rise before you are back to break-even.

"No-load" funds carry no initial sales charge. Where advice is given on a fee basis, the sales charge may be rebated or set to zero, with the adviser paid a separate advisory fee instead.