The Telegraph has a lengthy article by Richard Evans with a rather complicated discussion about fund charges and fees with some of the most misleading charges or fee figures coming from emerging market funds (Note: The article is written from a British fund perspective and US securities laws would be different). Evans explains that:
For years, fund management firms tended to publicise a figure called the “annual management charge” or AMC. As a result, this “headline” measure is the most familiar to many investors. However, it is far from an accurate reflection of the total cost of investing in a fund. In fact, the AMC has historically been just the money that the fund group charges for its own services, taking no account of the many extra expenses involved in running a fund.
The extra costs not calculated in the AMC can include paying essential third parties such as custodians – companies that look after the fund’s assets on an arm’s-length basis – and auditors. Such additional costs can equal as much as the AMC itself – doubling the overall charge.
To read the entire article, Funds that cost four times the advertised rate, go to the website of The Telegraph.
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