Unit Trusts: Guide To Pricing And Fees

Key Takeaways

Funds can be priced using either “bid and offer pricing” or “single pricing”
The unit price is based on the fund’s net asset value (NAV) divided by the number of units outstanding
You will need to pay sales or redemption charges when you subscribe to or redeem units
Recurring fees are paid by the fund and include management fees, trustee fees and other fees. These costs are passed on to you

Funds are priced either by the “bid and offer pricing” method or the “single pricing” method. You can find details of the pricing method in the prospectus and the product highlights sheet.

You can get updated valuations of your fund from the daily newspapers and the FundSingapore.com website. Most funds in Singapore allow daily buying and selling of units.

How The Price Is Determined

The price of each unit is based on the fund’s Net Asset Value (NAV) divided by the number of units outstanding.

The NAV is the market value of the fund's net assets (investments, cash and other assets minus expenses, payables and other liabilities). The NAV is usually computed daily to reflect changes in the prices of the investments held by the fund

Bid And Offer Pricing

In the “bid and offer pricing” method, the subscription charge is added to the NAV per unit, while the redemption charge is deducted from the NAV per unit.

Here is what the terms mean:

Bid – Price at which investors sell their units
Offer – Price at which investors buy units
Spread – Difference (spread) between bid and offer prices of fund’s units reflects subscription (sales) and redemption charges (if any)

Single Pricing

The fund provides a single quote that reflects the NAV per unit. The subscription charges are deducted from the amount invested before the units are allocated. Any redemption charge will be deducted from the redemption proceeds.

Fees And Charges

Fees can reduce the returns from your unit trusts. Fees are usually payable regardless of how well or poorly the fund performs. For your fund to grow in value, the returns must be greater than the fees and charges incurred.

It is also important to assess if the fees paid justify the ongoing advice/ service the distributor offers you, and the costs of the fund manager managing the underlying investments in the fund.

There are two broad categories of fees:

One-off Fees And Charges

These fees are usually charged once per transaction when you subscribe into or redeem a fund. Typically, these fees are paid to the distributor and may be negotiable between you and the distributor.

Subscription fee or initial sales charge (also known as “front-end load”)	Payable to the distributor when you buy a fund Ranges from 1.5% - 5% of your investment Distributors that levy initial sales charges do not usually charge redemption fees
Redemption fee or realisation charge (also known as the “back-end load”)	Payable to the distributor whenever you sell or redeem the fund Ranges from 1% - 5% of your investment Some funds progressively reduce the redemption fee if you hold your investment over a longer period of time Distributors that charge redemption fees do not usually levy initial sales charges
Switching fee	Payable to the distributor when you switch from one fund to another fund managed by the same fund manager Typically, about 1% of your investment Usually, if you are charged a switching fee, you would not be charged initial sales charges for that transaction
Upfront charges (for wrap accounts)	Payable to the distributor whenever you place new monies with the distributor Ranges about 2% - 3% of new monies Only applicable if you sign up for a wrap account with the distributor Typically, you would not need to incur initial sales charges, redemption fees or switching fees for transactions if you are on a wrap account

Recurrent Fees And Charges

There are two types of recurring fees;

Fees that are payable by you; and
Fees that the fund manager and other parties charge the fund for providing their services.

Fees That Are Payable By You

Platform Fees

This is incurred if you buy funds through a fund platform or buy funds through a financial adviser who uses a fund platform
Ranges from 0 – 0.3% per annum of the total value of fund holdings held with the fund platform
Payable to the fund platform provider
Platform fees will be deducted from the cash holdings placed with the fund platform. If you do not have cash holdings placed with the fund platform, some of your fund holdings (typically the best-performing ones) would be sold off to pay the platform fees

Wrap Fees

Payable to the distributor if you sign up for a wrap account
Approximately 1% per annum of the total value of assets under the advice of the distributor
Payable to the distributor

Fees Charged To The Fund

Management Fees

Payable to the fund manager for managing the fund.
Actively managed funds charge management fees ranging from 1.0% - 2.0% per annum of the fund’s NAV, while passively managed funds generally charge management fees below 1%.
20% - 60% of the management fees are paid by the fund manager to the distributor so that the distributor would provide ongoing advice/service to you. This amount paid to the distributor is also known as a trailer fee.

Other Fees

Payable to the fund’s service provider such as the trustee, administrator, custodian, accounting and valuation provider and auditor

The fees charged to the fund make up the Total Expense Ratio (TER). The TER is usually between 1.0% and 2.5% of the fund’s NAV and should be disclosed in the fund’s factsheet.

Tip: Assess a fund’s TER before deciding whether to invest in it. Use the TER to compare the costs that will be incurred by (i) different funds with the same investment objectives or approach, and (ii) the same fund through different channels. Assess an actively managed fund's TER and track record against its passively managed equivalent, if any, before deciding whether to invest in it, and vice versa.

The Bottom Line

Find out the maximum amount that the fund can levy for each charge. Ask for a clear breakdown of all the fees and charges that you expect to pay for your investment. Do note that charges that are not currently levied may still be imposed in the future.

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