Investment fees can impact your investment earnings. This is why it is important to understand how to manage those fees.
The first step to managing those fees are to learn what fees are associated with your investments and when the fees are assessed. The most common costs of investing include:
Account fees can come in the form of opening fees (one-time charge) or maintenance fees (recurring charges, usually charged annually).
Account fees are flat fees. They are not based on how much money you have invested or the number of trades you do throughout the year.
Look for promotions that waive account opening fees.
Transaction fees are charged by your broker each time you carry out a transaction (i.e. buy or sell stocks).
The broker typically decides on the amount of these fees.
This fee is in addition to the money you will be investing. So, do take this fee into account when buying or selling a stock.
In Singapore, most brokerages charge a minimum of S$25 (or a percentage, depending on your transaction size). The exception is Standard Chartered bank which charges a minimum of S$10
Sometimes, you can find a promotion that offers little to no charge for a certain number of transactions when you open a new account. Or a discounted fee for transactions made within the promotion period.
Clearing Fees, Access Fees, GST
Alot of articles focus and compare transaction fees across various brokerage. Hence, investors often only focus on that.
Do remember that on top of the transaction fees, you are also required to pay clearing fees, SGX access fees and GST for every transaction you make.
Depending on the investment tool you are using, you may be required to pay Management Fees.
Active funds and unit trusts generally have a higher management fee compared to passive funds or ETFs.
The fees can be charged monthly, quarterly or annually and are a percentage of the value of your portfolio. Usually, the fee will automatically be deducted from the cash in your portfolio.
Your investments may be sold off to cover the fees when there is a need to. And these fees can eat into the expected returns of the funds that you are invested in.
Expense Ratio Fees
If you invest in mutual funds, you will be charged expense ratio fees. This fee is deducted from your returns rather than your investment capital.
Similar to management fees, expense ratio fees can impact the returns on your long-term investments. Furthermore, because this is taken from your earnings, you may not even be aware of the charges.
Although investment fees can be confusing, they are something that you need to understand as they can impact your overall portfolio earnings.
Understanding the fees, learn how to reduce them and you will be able to filter more returns towards your retirement.