Technical Savings and Investments Information

Charges and Fees of Investment Funds
There are, at a minimum, usually two types of fees incurred in investment in funds. The first type is a sales fee or load of a fund for the operation and distribution costs of the fund and the second type is the annual management fee paid to the fund management company for their services.

(a) No Load
With direct marketing, the fund house sells the units/shares directly to the investors without the use of a sales organization. This type of investment fund is known as a no load fund and imposes no initial sales fee. The units/shares are sold to the investors at a price equal to their NAV.

(b) Sales Fee/Load
When investment funds are sold through the use of a sales force, the fund house has to pay a commission based on the units/shares sold. This is known as a load charge and the common load types are described as follows:

- Front-end load;
- Back-end load; and
- Level load.

(i) Front-end Load
A front-end fee is charged to the investors when the shares/ units are purchased from the fund house. The fee is paid up-front and just once, as a percentage of the initial purchase price. This type of funds is commonly known as class A unit/share and is an attractive choice for long-term investors.

(ii) Back-end Load
Back-end load will only be paid by the investors when the units/shares are sold back to, rather than when  they are purchased from, the fund house. That is, when the investors sell their units/shares back to the fund house, a deferred contingent sales charge or redemption charge may be applicable. The deferred contingent sales charge is typically calculated as a percentage of the NAV and applies for the first few years that the investors own the units/shares. The fee decreases over time in steps until it disappears.

The redemption charge may be a fixed percentage of the NAV, or based on the time period for which the investors have held their units/shares. In addition, a distribution fee of up to 1% is usually applicable annually. This type of funds is commonly known as class B unit/share and is more attractive for investors who intend to hold the units/shares for a medium term of at least 5 years. Some class B units/shares may be set up so that they convert to class A units/shares after a number of years and the annual distribution fee will be avoided thereafter.

(iii) Level Load
A level load fund requires the investors to pay a small front-end charge when the units/shares are purchased from the fund house, and possibly a small back-end charge if they are sold back to the fund house in less than a year. However, a distribution fee is again applicable to cover the selling expenses. This type of funds is commonly known as class C unit/share and is more attractive for the short-term investors. However, it should be noted that level load is not too common in Hong Kong.

(c) Management Fees
In addition to sales charges, the management company will charge annual management fees for the investment and advisory services provided by the professional fund manager. The management fee is set at a certain percentage, usually ranges from 0.5% to 1% per annum, of the average market value of the fund.

Under the “Code on Unit Trusts and Mutual Funds”, the level/basis of calculation of all costs and charges payable from the scheme’s property must be clearly stated, with percentages expressed on a per annum basis.  The aggregate level of fees for investment management advisory functions should also be disclosed.

If a performance fee (ie a fee based on the actual investment gains achieved) is levied, the fee can only be payable:

(1) no more than annually; and
(2) if the NAV per unit/share exceeds the NAV per unit/share on which the performance fee was last calculated and paid (ie on a high-on-high basis).

(d) Other Fees
Other fees which may be charged by the investment company include (but not limited to):

(1) administration fee which covers record keeping and services to investors;
(2) guarantee fee (mainly for guaranteed funds);
(3) trustee fee; and
(4) custodian fee.