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How to pay annual charges on an Investment Fund

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AndyM
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How to pay annual charges on an Investment Fund

#415435

Postby AndyM » May 27th, 2021, 4:24 am

I have a SIPP with AJ Bell Youinvest and have recently gone into drawdown. I plan to invest in the AJ Bell Funds. When purchasing, AJ Bell offers this option: "You can choose to include our dealing and other charges in the total cost of your investment or exclude them an pay them on top of the amount invested"

When investing in an investment fund is it best to have the charges deducted from the fund (thus reducing the value of the fund) or pay them separately (thus keeping the value of the fund)?

So for example a fund of £50 000 with an Ongoing Charges Figure (OCF) of 0.35% would incur a charge of £175. I would like to know is it better to have the charge deducted from the fund or pay it separately from the fund.

gryffron
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Re: How to pay annual charges on an Investment Fund

#415541

Postby gryffron » May 27th, 2021, 11:47 am

AndyM wrote:When investing in an investment fund is it best to have the charges deducted from the fund (thus reducing the value of the fund) or pay them separately (thus keeping the value of the fund)?

Obviously it is better for your savings to leave more in your savings. But then you'd have less to spend. For a true comparison you need to ask which is better overall. So let's assume you would alter your withdrawals to keep your post-fees income the same.


During drawdown, withdrawn funds are (usually) taxable. So paying from without you are effectively losing fees + income tax. Paying from within would be tax free.

So, given the tax treatment of Pensions, for a taxpayer it is surely better to pay from within. If you're not paying income tax, then it doesn't matter.

Gryff

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Re: How to pay annual charges on an Investment Fund

#415558

Postby gryffron » May 27th, 2021, 12:18 pm

More thought. I was assuming above that the payment can come from inside or outside THE PENSION.

Rereading: If the question is about payments made within the pension but inside/outside THE FUND, then it makes little difference, as it is trivial to move money into or out of the FUND.

Gryff

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Re: How to pay annual charges on an Investment Fund

#415571

Postby Dod101 » May 27th, 2021, 12:52 pm

AndyM wrote:I have a SIPP with AJ Bell Youinvest and have recently gone into drawdown. I plan to invest in the AJ Bell Funds. When purchasing, AJ Bell offers this option: "You can choose to include our dealing and other charges in the total cost of your investment or exclude them an pay them on top of the amount invested"

When investing in an investment fund is it best to have the charges deducted from the fund (thus reducing the value of the fund) or pay them separately (thus keeping the value of the fund)?

So for example a fund of £50 000 with an Ongoing Charges Figure (OCF) of 0.35% would incur a charge of £175. I would like to know is it better to have the charge deducted from the fund or pay it separately from the fund.


I am assuming that mention of the SIPP is a bit of a red herring as far as your question is concerned. Thinking of an investment fund and its charges, it ought to be better to pay these charges outside of the fund, since that will mean that the value of your investment in the fund is unchanged and so as years go by, there should be a compounding effect by leaving marginally more money in the fund, but that seems fairly obvious. I doubt very much that you will really see the benefit in any measurable way. I do not think anyone can advise you which is better because of course you are still paying the charges whichever way you choose to fund them.

Dod

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Re: How to pay annual charges on an Investment Fund

#415572

Postby Alaric » May 27th, 2021, 1:06 pm

AndyM wrote:So for example a fund of £50 000 with an Ongoing Charges Figure (OCF) of 0.35% would incur a charge of £175. I would like to know is it better to have the charge deducted from the fund or pay it separately from the fund.


You don't have a choice on OCF. The quoted buying or selling price is after ongoing charges including OCF. What I imagine AJ Bell are asking about is how you want to pay THEIR charges. This would include dealing commission upfront and any flat fees or percent of value fees for running the SIPP account and holding particular types of investment.

Regarding that type of charge, on the one hand you might want to keep the maximum possible in the tax shelter, on the other, it's taking money out of the SIPP without there being a tax liability on it.


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