Misleading Information 2 ~There are Hidden Costs in Unit Trust Investment


There are hidden costs in Unit Trust investment, like annual management fee,audit fees, annual expense ratio, aside from sale charges. You got to think twice before you use unit trust as investing instrument. It is more costly than you know.

I have read a few online articles written on this misleading information and from people around me that were talking about this issue. The first misleading factor is the term “hidden” being used. It gives investor an impression that something is deceptive in nature about unit trust investment.

The second misleading, and the most erroneous information is that this hidden cost will be deducted from your profit rate. For example, when the management ratio fee of a fund house is 2.5% per annum, and your return of investment after a year is 10%,  your take home will only be 10% -2.5% = 7.5%. This kind of article makes new investors feel reluctant to use unit trust to invest.

I just wonder where these writers derived such calculation. I am sure they have never invested with unit trust before. Actually, aside from sale charge or exit charge if any, management fee and all other operational fees are deducted from the total asset of the fund annually, not from individual profit. As far as I know, in my investment experience, the 10% return in profit is actually your total return in profit, full stop! There are no more other “hidden” charges.

Even sale charge has already been included in the profit rate of returned. Because at the moment we buy into a fund, our capital would have been deducted for the sale charge. That’s why all beginning unit trust investment started with negative profit, which is equivalent to the sell charge at the instant it appears in our portfolio.

charges listed out
Every fund charges are listed publicly as mandatory obligated by laws and orders

These management fees or other expense ratio figures are only good for professional study when they compare efficiency between different funds from the same asset class. This can be part of the procedure recommended in fund selection before investing. They are not “hidden” in any way as well. They are all written in their fund fact sheets or prospectus. It is opened for public disclosure which is mandatory under the financial institutional laws and orders.

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