Changes to Charges

We've introduced Ongoing Charges to our investment trust reports to help you make meaningful comparisons across funds

Jackie Beard, FCSI, 12 July, 2012 | 3:09PM
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European regulation is changing for funds in an attempt to make their charges clearer and more comparable. The Total Expense Ratio (TER) will be replaced by Ongoing Charges. While neither is perfect, it’s a good step in the right direction and makes comparison across different fund types (ETF, investment trust, OEIC) easier and more meaningful.

The AIC has recommended its member firms start to calculate Ongoing Charges. It’s not yet compulsory for investment trusts, or closed-end funds, to do this, but their view—and ours—is that it’s only a matter of time before this happens. So it makes sense to start using them now.

The Ongoing Charges are the costs you can reasonably expect to pay as an investor from one year to the next, under normal circumstances. They include all professional fees, management fees, audit fees and custody fees.

They don’t include performance fees as these can vary depending on how well or badly a fund performs. They don’t include borrowing costs so if an investment trust has a loan for gearing purposes, that cost isn’t part of the Ongoing Charge and again it can vary, particularly if the loan is short-term or is repaid. Importantly, they don’t include trail commission.

At Morningstar, we think Ongoing Charges are a helpful way to compare costs across funds and so we’ve introduced them on our website for investment trusts. Look up any investment trust on and you'll see all the details under the Fee tab--click here for an example.

Read a more in-depth explanation of the regulatory changes behind this move here.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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