The myth
When investing in managed funds, you’ll rely on the expertise of professionals who’ll do the necessary research and make the decisions for you. These funds cost money to run and investors usually help foot the bill in the form of fees.
Some people argue that fees eat into investors' profits. They believe they’re better off managing their own investment portfolio to save on high fees over time.
The reality
There’s no such thing as free lunch and so products and services always come at a cost. Fees are necessary to operate and maintain managed funds like mutual funds or Unit Investment Trust Funds (UITFs).
You’ll see varying amounts and types of fees from different banks or investment companies. There are publicly available documents that show important details about funds, such as fees that may be deducted from your investment.
To find this information, read a mutual fund’s fact sheet or a UITF’s Key Information and Investment Disclosure Statement (KIIDS).
Such investment funds may charge service or management fees, early redemption fees, and sales charges. Before investing in a managed fund, weigh the possible pros and cons to know if these charges are reasonable.
- Potential disadvantages
Certain fees may apply no matter how a fund performs, and can worsen any loss or shrink your potential earnings.
These fees can also add up over time, especially if you’re investing for the long haul. That’s why it’s ideal to check for fees or charges before putting your money in any fund, and factoring them into any projections you’ll make.
- Potential advantages
Even with fees in mind, a fund might be worth your money if its performance aligns with your goals. Historical returns can give you a clue on whether the fund’s profits justify its fees. Take note, however, that past performance doesn’t guarantee future results.
There are other benefits that a managed fund could offer, like convenience and diversification. It may be easier to pick such investment funds if you don’t have the time or skills to do your own research.
Pooled funds generally contain different assets and so they might help diversify your portfolio at a relatively low cost.
Verdict: It depends
Small amounts add up over time and this applies to both your investments and the fees they bear. When choosing how to grow your money, it’s important to do the math but there are other factors worth considering.
You may find that a managed fund’s fees are reasonable relative to its performance and other benefits it could bring.
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