MANILA, Philippines - When planning to invest your money, there are various factors that you have to consider: the investment’s fund’s performance, composition, the fund manager, and more.
One of the most important yet sometimes overlooked aspects, however, are the fees that go with the transaction.
It is equally important to look at fees because they will affect how much money you will eventually “net”, or get from your investing activities.
Fees and similar charges are imposed on almost all kinds of financial products and assets: insurance plans, mutual funds, unitary investment trust funds, equities, money market placements, and the purchase and sale of real estate.
There are different kinds of transaction fees levied on various financial products. They may be in the form of straight transaction fees or as commissions. However, not all investment products have transaction fees. Fees vary among financial institutions and fund managers, so you should take the time to compare.
Reputable brokers or fund managers would tell you about the fees you will incur for your transactions, but it never hurts to seek out the information yourself. Therefore, you should make it a habit to check out the prospectus of any fund you are considering for the discussion on fees and charges. They are often listed under the fees and management section of a fund’s description.
If you are considering the purchase or sale of real estate, you should make it a point to ask about broker’s fees and the like before beginning transactions.
The most common transaction fees for financial transactions are the following:
Initial sales charge or front-end load fee: This is the fee imposed when you buy an investment fund.
Deferred or back-end load fee: This is the fee you pay when you sell an investment fund.
Exit or redemption fee: This is imposed when you sell an investment fund. Usually, these fees are higher when you sell early. The longer you hold on to the fund, the lower the fees become. For some investment products, meeting a certain term, say holding on to an investment for two years, will result in waiver of this fee.
Management fee: This is the transaction charge imposed by the fund manager for managing an investment fund. This could be imposed yearly.
Broker’s commissions: This is a percentage of the sale whenever you make a transaction for the purchase or sale of shares (e.g. equities). This is also paid when you buy or sell real estate through a third-party broker.
Here are some points to consider when evaluating fees:
Transaction fees are not applied in the same way by all brokers.
Although most would charge a transaction fee for each and every transaction, such as when you buy and sell a fund, there are brokers who would only charge you for either buying or selling a fund. This is why you should look at how these fees are applied when making a comparison. If broker A charges 1.5% for buying and 1.5% for selling, while broker B charges 3.5% for buying and none for selling, then broker A is still charging less fees.
Examine no-load funds closely.
If you get a no-load fund, remember that you may still end up paying some fees, such as if you went through a third-party broker. A fee may also be imposed if you sell early. This is why it is important to always ask questions about fees.
Check where you can buy a certain fund or asset with the least amount of fees.
Just as you check out where you can get a liter of gas or a can of milk at the least cost, so should you check where you can get a certain asset for the least fees. Some mutual funds may be sold directly from the companies selling them instead of through brokers. Going straight will help you lessen the fees you are paying. If you need to go through a broker, ask for a list of funds with their corresponding charges. Consider exchange-traded funds as well, since these do not carry management charges.
Of course, as in most things in life, with investment fees, you also get what you pay for. The fees are there to enable fund managers or brokers to extend a level of service that some clients don’t mind paying for, such as portfolio review, up to date market information and more.
At the end of the day, it is important that you do your research. Before investing in any fund or asset, make it a habit to gather as much information as you can not only about fees, but everything else about what you are purchasing. Aside from fees, you may also want to check out taxes, as well as redemption periods, minimum investment requirement, monitoring, and the like.
Note that fees are just one aspect to think about when considering where and how to invest. When buying any fund or asset, your main consideration should be how the purchase of the fund or asset will help you attain your financial goals, and how well the choice of fund or asset fits your financial profile and risk appetite. You shouldn’t get a fund simply because its fees are low if the fund itself does not dovetail with your financial goals.
Grow Your Money is an editorial partnership between ABS-CBNnews.com and Citi Philippines to promote financial education and provide helpful information to Filipinos on how to better manage their personal finances.
Visit www.citibank.com.ph for more information.