Fund charges and costs
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Aviva Investors actively promotes the understanding of the nature of charges and costs, and transparency in their disclosure to investors. This is in line with Investment Association recommended practice.
When investors use funds to invest in financial markets they are charged for the running of those funds. All such fund charges are disclosed in a standard format in the Key Investor Information Document (KIID). These fund charges are referred to in more detail at paragraph (A) below and additional information can be found in the Supplementary Information Document and the fund's Prospectus.
In addition, in common with other types of investors in financial markets, a fund incurs costs as a necessary part of buying and selling underlying investments in order to achieve its investment objective. These portfolio transaction costs affect a fund’s investors in different ways depending on whether they are joining, leaving or continuing with their investment in the fund and are referred to in more detail at paragraph (B) below.
The table of fund charges and costs in the link below and the following wording explain what these charges may be and state the charges applicable to our funds or where details can be found.
(A) Fund charges
Maximum entry charge
This is the maximum charge that some managers may take from your money before it is invested. For example, if you invest £1,000, an entry charge of 5% means £950 of your money is used to buy shares/units in your chosen fund. The charge is used to cover the costs of setting up your investment. For dual priced funds, the entry charge is included in the price you pay to invest, and makes up part of the issue to cancellation spread (referred to in more detail below). In the interests of simplicity, with effect from 4th June 2018 we reduced this charge to zero for every fund other than the Aviva Investors US Equity Income Fund.
Some fund managers choose to take a charge when you sell your investment instead of or in addition to an entry charge in order to cover their costs. However, Aviva Investors does not currently impose any exit charges on our funds.
This is a historic measure of the annual costs of managing a fund, although it may be based on an estimate of upcoming costs where this provides a better indication of the expected costs. It is made up of the fund management fee and, where a fund invests a substantial portion of its assets in other funds, an amount for the pro-rated charges of those other funds (referred to as “synthetic charges” or the “synthetic” part of the ongoing charge). In turn this fund management fee is a single fixed rate charge to cover the underlying fees, costs and expenses of operating and administrating the fund. It accrues daily and is calculated as a percentage of the net asset value of the fund. The underlying fees, costs and expenses covered by the fund management fee may fluctuate. In fixing the fund management fee, we bear the risk that the balance of the fee payable to us (after all other underlying fees, costs and expenses have been paid) will not fully remunerate us in the event of a deficit, but conversely we will be permitted to retain any surplus. Charges are normally deducted on a daily basis and reflected in the price of the units/shares. This means that you will not see them shown on your statement and do not need to pay for them separately. The figure for ongoing charges excludes performance fees and portfolio transaction costs, except in the case of an entry/exit charge paid by the fund when buying or selling shares/units in another collective investment scheme.
Property Expense Ratio
The nature of investment in real property is such that there are significant costs associated with property assets. A fund will bear expenses in relation to real property asset management (such as lease renewal costs, rent review fees and letting costs) known as the Property Expense Ratio (PER). The PER will vary over time and is in addition to the ongoing charge. The PERs for all share classes are available in the Report and Accounts on avivainvestors.com.
None of our funds currently have a performance fee.
(B) Portfolio Transaction Costs
Comparing portfolio transaction costs for a range of funds may give a false impression of the relative costs of investing in them for the following reasons:
- Transaction costs do not necessarily reduce returns. The net impact of dealing is the combination of the effectiveness of the manager’s investment decisions in improving returns and the associated costs of investment. Historic transaction costs are not an effective indicator of the future impact on performance.
- Transaction costs for buying and selling investments due to other investors joining or leaving the fund may be recovered from those investors for large trades as referred to in more detail at paragraph (C) below.
- Transaction costs vary from country to country.
- Transaction costs vary depending on the types of investment in which a fund invests.
- As the manager’s investment decisions are not predictable, transaction costs are also not predictable.
Portfolio transaction costs include broker commission, taxes and dealing spread / issue to cancellation spread.
This is the fee paid to a broker to execute a trade, based on number of shares traded. On average, over the last three financial years the fund(s) incurred broker commissions as shown in the table of fund charges and costs in the link above, as a necessary part of buying and selling the fund's underling investments in order to achieve the investment objective.
These are taxes incurred when purchasing certain investments (e.g. Stamp Duty on purchases of UK equities).
Dealing spread/ Issue to cancellation spread
The dealing spread is relevant to the single priced funds and represents the difference between the buying and selling price of the underlying investments. Some investments have no separately identifiable transaction costs: these costs form part of the dealing spread. Dealing spreads vary considerably depending on the transaction value and market sentiment. The Issue to cancellation spread is relevant to the dual priced funds. As stated below, where we operate a dual pricing methodology, prices are calculated by reference to either the issue price or the cancellation price. The Issue to cancellation spread is the difference between the issue price and the cancellation price.
We operate a dual pricing methodology for certain funds. This means that when such a fund is experiencing net inflows, buying and selling shares/units takes place on an offer pricing basis, calculated by reference to the price of buying the underlying investments (the creation or issue price). However, when that fund is experiencing net redemptions, buying and selling shares/units takes place on a bid pricing basis, calculated by reference to the price of selling the underlying investments (the cancellation price). This means that, when investments are bought or sold as a result of other investors joining or leaving the fund, your investment is fully protected from the costs of these transactions as dilution is addressed within the price.
For funds where we operate a single pricing methodology we reserve the right to charge a dilution levy (Investor Protection Fee) to protect your investment from the costs of buying or selling investments that result from large investors joining or leaving the fund. The amount of any such dilution levy is calculated by reference to the estimated costs of dealing in the underlying investments, including any dealing spreads, broker commissions and taxes. When we impose a dilution levy on a particular investor or group of investors, this is paid into the fund and helps to protect your investment from the costs of the resultant transactions. For details of dilution levies applied in a fund historically, and on what values, please see that fund's Prospectus.
(D) Further guidance
Further guidance on fund charges and costs can be found on the Investment Association’s website by clicking here.