How does unit trust or ILP deduct management fee?

[benson987fm]

Hi all,

I noticed there are management fee for unit trust and ILP funds.

I am curious on how the management fee is deducted from my investment.

I can't find any illustration for such deduction.

Can anyone care to illustrate it? I believe many people are also interested on this topic.

Thank you in advance. Cheers!

 

[bigmice]

reflect on the unit price

 

[benson987fm]

Thanks for the quick reply. =)

Is it possible to illustrate how it is reflected in the price?

Is it like this:
Current price = previous price * (1 + return rate - management fee rate)

 

[Shiny Things]

reflect on the unit price

That's super useful, thanks mate.

Here's how it usually works. The ETF (or unit trust, I'm just going to say 'ETF' so I don't have to type it out every time) has an annual fee attached to it - let's say that's 0.2%, which is a decent fee for an ETF. Each day, the ETF sells a tiny fraction of its assets - 0.2% divided by 365, give or take - and that money gets handed over to the ETF manager, as a management fee.

This means the NAV of the fund drops by that tiny amount each day. That gets reflected in the redemption price (for a unit trust) or the NAV quote (for an ETF).

 

[benson987fm]

That's super useful, thanks mate.

Here's how it usually works. The ETF (or unit trust, I'm just going to say 'ETF' so I don't have to type it out every time) has an annual fee attached to it - let's say that's 0.2%, which is a decent fee for an ETF. Each day, the ETF sells a tiny fraction of its assets - 0.2% divided by 365, give or take - and that money gets handed over to the ETF manager, as a management fee.

This means the NAV of the fund drops by that tiny amount each day. That gets reflected in the redemption price (for a unit trust) or the NAV quote (for an ETF).

Hi Shiny,

Thank you for the explanation! =) Almost all the websites that i read, explain exactly like your explanation.

Currently, I am try to create a price simulation for unit trust and funds to compare the cost and return of buying ILP vs Term + unit trust.

Is my interpretation correct?

Price of an etf / unit trust =
[(Total_Asset x Total_Asset_Annual_Growth) x (1 - Total_Annual_Expense_Ratio)] / Total number of shares ?

 

[anfielder]

Hi Shiny,

Thank you for the explanation! =) Almost all the websites that i read, explain exactly like your explanation.

Currently, I am try to create a price simulation for unit trust and funds to compare the cost and return of buying ILP vs Term + unit trust.

Is my interpretation correct?

Price of an etf / unit trust =
[(Total_Asset x Total_Asset_Annual_Growth) x (1 - Total_Annual_Expense_Ratio)] / Total number of shares ?

Unit trusts are almost as bad as ILP. Why not consider etfs instead

 

[benson987fm]

Unit trusts are almost as bad as ILP. Why not consider etfs instead

I will conduct a study on cost and return for term + etf once i am done with ILP vs term + unit trust.

Do you know how the management fee deducted from the price? Is my formula above correct?

Btw, do you know what are costs of trading ETF?

Other than the 2 STI etf, is there any other popular ETF available to retail investor?

 

[Shiny Things]

Is my interpretation correct?

Price of an etf / unit trust =
[(Total_Asset x Total_Asset_Annual_Growth) x (1 - Total_Annual_Expense_Ratio)] / Total number of shares ?

Pretty much. The key is:

• ETFs tend to have low expense ratios - 0.2-0.4%;
• Unit trusts tend to have high expense ratios - 1-2%;
• ILPs are just an insurance wrapper around unit trusts, so you pay two layers of fees - the unit trust fees plus an extra 1-2% per year;
• Don't forget the upfront sales costs or brokerage fees.

Guaranteed, you'll end up with "UTs and ILPs are worse".

 

[benson987fm]

Pretty much. The key is:

• ETFs tend to have low expense ratios - 0.2-0.4%;
• Unit trusts tend to have high expense ratios - 1-2%;
• ILPs are just an insurance wrapper around unit trusts, so you pay two layers of fees - the unit trust fees plus an extra 1-2% per year;
• Don't forget the upfront sales costs or brokerage fees.

Guaranteed, you'll end up with "UTs and ILPs are worse".

Thanks for the replies! =)

I also think etf is cheaper than UT and ILP. Buying sg etf alone is not diversify enough, have to buy overseas etf (such as US, China, etc) to get a higher return....


Any idea what is the cheapest way in singapore to buy overseas etf .....

 

[Geeezz]

Thanks for the replies! =)

I also think etf is cheaper than UT and ILP. Buying sg etf alone is not diversify enough, have to buy overseas etf (such as US, China, etc) to get a higher return....


Any idea what is the cheapest way in singapore to buy overseas etf .....

I think the standard ans here is use standchart