Costs

Pays for:
Costs of preparing and auditing the annual accounts, stationery, printing and meetings as well as legal fees, registry fees and custodian fees. The provider may pay these straight out of the fund so that all investors pay their share and the investment returns are reduced by the expenses. In other cases, the provider may pay them from other fees they receive so the investment return is not directly affected.

Also known as:
Disbursements, expenses, professional fees (for legal or accounting costs), recovered expenses, recoverable expenses.

Cost:
Nil (where paid by provider) to 0.2% a year; for a typical, relatively large fund, about 0.02% would be reasonable.

Tips:

• There is no industry standard about what out of fund costs should include and exclude, or how they should be reported.
• It is often difficult to uncover the out of fund costs. If you have the annual accounts for the product, look for the different types of expenses listed in the statement of financial performance (such as accounting, audit, legal and registry costs) and add them up yourself.
• If the overall fees are the same between equivalent products but one provider pays the out of fund costs while the other charges these to the investors, the first fund is preferable.
• If you aren't charged brokerage when you put money into the product or take it out, all members will share any brokerage costs. Brokerage then becomes part of the out of fund costs.
• Out of fund costs do not usually relate to the size of the assets managed in the product. So, in a new or smaller fund, they will often represent a relatively higher amount than in a larger, more mature fund.