Question
If a unit trust takes it`s annual management charge from income, am I right in thinking that post RDR the `clean version ` will produce a higher yield; as the AMC is lower?Answer
Yes, you're quite right.
Let's assume a fund charges 1.5% a year, which is taken from income before its paid out to investors. if the fund receives annual income equivalent to 4% of the fund, 2.5% (4 - 1.5) will be paid out to investors.
if the clean version of the fund charges 0.75% then 3.25% will be paid out (4 - 0.75).
Obviously, you may end up paying additional platform/discount t broker fees out of capital, potentially offsetting some of the benefit, but this is still a positive consequence of explicit clean charging.
If a unit trust takes it`s annual management charge from income, am I right in thinking that post RDR the `clean version ` will produce a higher yield; as the AMC is lower?Answer
Yes, you're quite right.
Let's assume a fund charges 1.5% a year, which is taken from income before its paid out to investors. if the fund receives annual income equivalent to 4% of the fund, 2.5% (4 - 1.5) will be paid out to investors.
if the clean version of the fund charges 0.75% then 3.25% will be paid out (4 - 0.75).
Obviously, you may end up paying additional platform/discount t broker fees out of capital, potentially offsetting some of the benefit, but this is still a positive consequence of explicit clean charging.
Read this Q and A at http://www.candidmoney.com/askjustin/881/do-clean-fund-versions-have-better-income-yields
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