Mutual fund fees or management fees are a point that many people overlook, but it is an important matter when buying mutual funds, no matter what the returns are. In this article, we will take us to understand more about how important this is.
“I bought a mutual fund, why didn’t I get the full amount I invested?”
At the end of last year, many salaried workers rushed to buy LTF and RMF funds to benefit from tax deductions. Some may have invested in other mutual funds to save and invest for future retirement plans.
But many people have questions after buying 10,000 baht worth of investment units. Why is it that the money invested in the investment units is only 9,900 baht? Why is 100 baht of the money we intended to invest missing? Why did they deduct our money?
The missing 100 baht is the fee that we must pay to the fund management company.
“Why are there mutual fund management fees?”
Because there are many expenses involved in managing mutual funds, such as managing investments to generate profits, keeping fund assets, preparing accounts and financial statements, disclosing investment information, preparing a register of unitholders, and other services that will provide investors with easier and more convenient investment channels, etc.
To make it easier to understand what mutual fund management fees we as investors will face? If we invest in a mutual fund (a fund) and hold this fund for a period of time.
There are two types of mutual fund service fees: fees charged directly to unitholders and fees charged by deduction from the mutual fund’s assets.
1. “Fees charged directly to unitholders” are fees incurred when investors make transactions to buy-sell-exchange and transfer investment units.
Front-end-fee is a fee that the investment management company (AMC) will charge from the unit purchaser and will be added to the value of the investment units purchased.
Back-end-fee is a fee that unit buyers are charged when they sell investment units back to the asset management company. It will be deducted from the money received from the redemption of investment units.
For example, a mutual fund states that there is an initial fee when buying, which is 1%. If we invest 10,000 baht, this fee is 100 baht, leaving us with 9,900 baht to invest in the mutual fund. If the same fund
As time passes, the mutual fund we hold increases in value to 15,000 baht. If we want to sell this investment unit to make a profit, there will be a fee when selling the investment unit back to the asset management company, which is 1%. We will receive 14,850 baht, etc.
In addition, there may be other fees, such as fees for transferring investment units to another person or fees for switching investment units, which may occur if unitholders of one mutual fund wish to switch to invest in another mutual fund under the management of the same asset management company, or a penalty for redeeming investment units before the holding period specified in the project (Exit fee), etc.
2. “Fees charged by deducting from the assets of the mutual fund”
It is a fee charged to the fund to cover the expenses used in managing the mutual fund. Although this expense is not charged directly to investors, it is an indirect expense that unitholders must bear.
Including management fees, which are considered as compensation for using the knowledge and skills of mutual fund managers to manage the fund to achieve the targeted returns. Therefore, if it is a mutual fund with complex investments, this fee will be higher than other funds.
Trustee Fee: The trustee is responsible for overseeing the interests of investors, such as reviewing the calculation of the fund’s net asset value (NAV).
In addition, there may be other fees such as registrar fees, which are responsible for overseeing the fund’s assets to ensure they are complete and safe, securities brokerage fees, fund advertising and public relations fees, auditor fees, expenses for preparing and distributing prospectuses, etc.
In practice, this fee is calculated daily in the form of a total expense ratio (TER: Total Expense Ratio) and is deducted from the NAV before being determined as the daily NAV value that we trade. This makes it difficult for investors to feel the hidden fee.
“Why should we care about mutual fund management fees and expenses?”
Because it is also a very important factor. Because the fees and expenses of mutual fund management are the cost of our investment. It is like a deduction from the return, reducing the return on investment that we want.
Therefore, the returns we expect must also take into account the fees and expenses of mutual fund management.
“Where can I find out about mutual fund management fees and expenses?”
Details about mutual fund management fees and expenses can be found in the Fund Fact Sheet or prospectus, because all mutual funds are required to disclose these details to investors.
The Fact Sheet will show a graph of total expenses (TER: Total Expense Ratio) and each type of fee, which will show what the fund’s main fees are. And interestingly, each fee will have a maximum ceiling and will show what the fund is currently charging.
In terms of mutual fund fees, if the fund manager charges more fees, it will also affect the returns that investors will receive.
However, even though mutual funds may have some fees and fund management expenses, they are still considered a good option for salaried investors like us who do not have time to invest by ourselves.
Because good investment requires time to study information and continuously monitor the investment. But mutual funds have professional fund managers who are knowledgeable and constantly monitor and take care of the money invested for us.
However, before making any investment decision, you should study the information carefully and choose investments that match your goals and acceptable risks.
For other articles on Finance and Investment, please read more at:
Fund Fact Sheet Important information is like a map of mutual funds.
