Income Costs and Returns · Investment Trusts

The management fee is only one part of the cost of owning an investment trust. A fair comparison separates expenses inside the company from charges paid directly by the shareholder.

Start with the charging base

A manager charging 0.6% of £500 million would receive £3 million for a full year under a simple fixed base assumption. The actual agreement may use average assets, net assets, tiers or other definitions. A percentage without its base is incomplete.

Check performance fee terms separately. Relevant features can include the benchmark, measurement period, loss recovery conditions and any cap. A year with no performance fee paid does not prove that no fee can arise later.

Know what a comparison figure excludes

The AIC ongoing charge measures recurring operating costs relative to average net assets. Its methodology excludes items such as financing costs, portfolio transaction costs and performance fees from the basic figure. Read the current calculation notes rather than assuming it is an all inclusive ownership cost.

Keep company expenses separate from your brokerage commission, spread, currency conversion, platform charges and applicable taxes. Published NAV performance already reflects expenses incurred in the accounts. Subtracting the same internal expenses again would double count them.

Put costs in pounds and context

A £6 dealing fee on a £200 purchase equals 3% of the trade, before other costs. The same fee on £2,000 equals 0.3%. Trade size and frequency can matter as much as a small difference between annual charge ratios.

Compare similar mandates and look for evidence of value delivered after costs. A higher fee does not prove superior management, while the lowest fee does not eliminate risk or make different portfolios equivalent.

Try it yourself

You invest £800 with a £4 dealing fee and a £2 currency conversion charge. What is the immediate cost percentage before spread and taxes?

Show the worked answer

The £6 total equals 0.75% of £800. Include the other applicable costs separately.

Further reading

Educational material, not a recommendation to buy or sell a fund. Numerical examples are hypothetical. This guide focuses on listed investment companies commonly called investment trusts in the UK. Product terms, access and tax treatment vary by jurisdiction.

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