BLOG: How much are fund charges eating in to your returns?

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Ignoring the costs of investing and focusing purely on performance could lead to disappointment, writes Joanna Faith.
BLOG: How much are fund charges eating in to your returns?

It’s not easy to work out the real cost of investing in a fund thanks to the array of charges applied by product providers – initial fees, annual charges and trading costs to name just three.

Complicated charging structures can leave consumers confused and left in the dark about how costs will impact their returns.

But knowing how much you are paying is just as – if not more – important than making sure your investment is performing.

And it’s crucial to find out how much an investment is really going to cost before handing over any money.

That’s why the launch this week of a free calculator which tells investors and savers how much fees and charges can eat into their pot of money is such good news for consumers.

The calculator is the brainchild of the founders of the True and Fair Campaign, a not-for-profit organisation, created to ‘revolutionise cost transparency in the investment world’.

Suitable for investors of all levels of sophistication, the calculator fully analyses the total of costs of investing in a particular fund and highlights the full effect of charges and other costs on investment returns, in pounds and pence as well as a percentage.

According to the True and Fair Campaign, there is extensive research to show the less you pay in fees, the more your investment tends to grow. So the higher the costs incurred the lower the statistical probability that an investor will receive healthy returns.

This does not stop an exceptionally talented or lucky fund manager beating the market but the level of total costs incurred in any investment essentially represents the headwind facing that particular manager which they may or may not overcome.

I’ve spent a bit of time testing out the new calculator and it appears to be slick and user-friendly. And although it doesn’t profess to be 100% accurate, it offers a reasonably good estimate.

Tools like this are essential in creating the much-needed transparency consumers so desperately need and deserve.

I’d like to see more of these types of devices in other parts of the financial services space. It would be valuable, for example, for consumers to know exactly how much the add ons are costing them on their insurance policy or when they switch to a new current account.

Financial firms shouldn’t be afraid of more educated consumers. They should actively encourage them.

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