Costs and Charges explained

Buying a fund

Sometimes you may pay a fee when buying shares in a fund, known as an Initial Charge. This may be charged to cover costs which we incur when dealing with your investment instruction and creating your shares. As an example, if a fund has a 5% initial charge and you were investing £10,000, £500 would be paid as the initial charge. The rest of your investment, less any other charges, would then be used to purchase shares in the fund. The Key Investor Information Document (KIID), available in our fund pages, shows the initial charge (referred to as the “Entry Charge”) for each fund.

You may also be charged a Dilution Levy when buying shares. A dilution levy aims to protect existing shareholders from having the value of their investments reduced due to the impact on a fund incurring dealing costs when investments are bought or sold.  Sometimes a fund may operate a Dilution Adjustment rather than a Dilution Levy, which means the fund’s share price is adjusted to achieve the same effect as a dilution levy.  You can find more information on a fund’s dilution levy or adjustment approach in the Prospectus, available in our fund pages.  

When you buy shares in a fund, you will receive a contract note shortly after your deal is placed confirming the shares you have acquired and details of any charges applied.

Ongoing charges while you are invested

When you are invested in a fund, there are running costs involved in the ongoing administration of the fund. This includes what we have to pay to manage the fund's investments, as well as other costs that are incurred in operating the fund.

Most of these costs are aggregated into a single figure which shows the total operating cost of the fund over a year, this is called the Ongoing Charges Figure (OCF). The OCF can vary from one fund to another depending, for example, on the nature and complexity of the investments held by the fund, the amount of annual percentage charges or how fixed monetary fees impact the fund depending upon its size.

As an example, if a fund’s OCF is 1.20%, then you would pay £120 in charges on a £10,000 investment per year. This fee is not charged directly to you (we do not ask you to pay this amount to us each year) but instead, the individual fees are deducted directly from the fund, therefore the charge is reflected in the share price.

The individual charges that are often deducted from a fund and included in the OCF are:

Annual management charge:
‍A charge which covers the fees of Investment Fund Services (Us, as the entity ultimately responsible for the operation of the fund), Sponsor (the party which works with us to design and distribute the fund) and Investment Manager (the firm responsible for managing investments held within the fund).

Depositary fee and Custody fee:
‍Charges made by the Depositary and Custodian respectively in order for them to fulfil their legal duties to keep the fund’s investments and cash secure.

Audit fee:
A charge to cover the fees of the fund’s independent auditor.

Synthetic charge:
When a fund invests in other investment vehicles which have ongoing charges (for example, other regulated funds and ETFs), the fund will incur the impact of these fees through the performance which these investments provide. We calculate the impact of these charges and include their effect within the OCF. For funds making direct investments, such as in the shares of companies, there will be no synthetic charge incurred, therefore the fund is likely to have a lower OCF than a fund investing in other funds.

The above examples give a brief summary of the main charges which may be incurred by a fund on an ongoing basis. Details of all the charges applicable to a particular fund can be found in the Prospectus.  Details of the actual charges which have been levied can also be found within a fund’s Reports and Accounts. You can find out the OCF for a fund in the KIID. Copies of all of these documents are available in our fund pages.

There may also be instances where a fund pays a performance fee, which is a fee paid to the Investment Manager and is levied if the fund performs better than a particular benchmark against which it is measured.  Performance fees are not included in the OCF, however the KIID will show if a performance fee could be  charged to a fund.

Finally, there are also explicit transaction costs and implicit transaction costs. Explicit transaction costs are fees such as brokerage commission and taxes incurred when a fund’s investments are bought and sold.  Implicit transaction costs represent the ‘cost’ incurred by price movements experienced between the time an order to buy or sell an investment is placed by the Investment Manager and the time the order is actually carried out, also known as ‘slippage’. Neither of these costs are included in the OCF, however we publish details of these in a Charges and Costs document available in our fund pages.

What you can expect to pay when you withdraw your holdings

If you decide to sell your holdings in a fund, there may be an Exit Charge applied. This may be charged to cover costs we incur when dealing with your instruction and cancelling your shares.  As an example, if a fund has a 5% exit charge and you were selling £10,000 of shares, £500 would be paid as the exit charge. You would receive the proceeds of the redemption minus any exit charges levied. You can find out what the exit charge is for each fund in the KIID, available in our fund pages.

You may also be charged a Dilution Levy or Adjustment when selling shares.  As outlined in the 'Buying a fund' section above, this charge is levied to help to protect existing shareholders from having the value of their investments reduced when other investors enter or leave the fund. You can find out more information on a fund’s dilution levy or adjustment in the Prospectus.

Sometimes, an investor may wish to move their investment from an existing IFSL fund into an alternative IFSL fund, known as a switch. When this happens, a Switching Charge may be payable to cover the costs we incur dealing with the instruction. You can find out more information on a fund’s Switching Charge in the Prospectus.

When you sell shares in a fund, or switch your investment, you will receive a contract note shortly after your deal is placed confirming the transaction and details of any charges applied.