fees for index funds?

[luckyhands]

Hi guys,

If I'm wanting to fill an ISA with an index fund, do index funds generally attract a fee? I was reading an article on monevator and it says:

"The main expense spared with index funds is broker’s commission. You don’t pay it on index funds, as they are bought directly from the fund manager rather than on the stock exchange.

This makes index funds ideally suited for small investors who want to make regular contributions."

But if I were to set up an ISA account with my broker and want to purchase for example the HSBC FTSE 100 Index Acc, I would have to pay a brokerage fee.

In essence what I'm asking is where can I purchase my selected funds without attracting a brokerage fee?

thanks

 

[tommog]

If you go through a broker with a "fund supermarket" they will usually have deals with the the various fund providers that waive the initial fee. I have an RBS self selecting ISA and initial charges are pretty much non existant.

Obviously you have to still pay annual charges there is no way of getting around that as far as i'm aware. But if you're just getting a tracker fund theyre very low.

 

[SanMiguel]

Hi guys,

If I'm wanting to fill an ISA with an index fund, do index funds generally attract a fee? I was reading an article on monevator and it says:

"The main expense spared with index funds is broker’s commission. You don’t pay it on index funds, as they are bought directly from the fund manager rather than on the stock exchange.

This makes index funds ideally suited for small investors who want to make regular contributions."

But if I were to set up an ISA account with my broker and want to purchase for example the HSBC FTSE 100 Index Acc, I would have to pay a brokerage fee.

In essence what I'm asking is where can I purchase my selected funds without attracting a brokerage fee?

thanks

Are you talking about ETFs?
ETFs have a 0.5-1% charge for most of the basic index trackers, you still have to pay a broker commission to buy them...probably about £10.

 

[isatrader]

I had a search and found that you can trade without a brokerage fee with a fund supermarket like bestinvest currently, but they only allow you to invest in special funds like the one you mentioned. You can't buy ETFs or individual shares.

The fee seems to be built into the products as if you look at the performance of the HSBC FTSE 100 Index Acc vs the FTSE 100 that it tracks, it falls short by around -1% or -2% most years, so that's where they get their money from I imagine as that adds up over the years.

 

[SanMiguel]

I had a search and found that you can trade without a brokerage fee with a fund supermarket like bestinvest currently, but they only allow you to invest in special funds like the one you mentioned. You can't buy ETFs or individual shares.

The fee seems to be built into the products as if you look at the performance of the HSBC FTSE 100 Index Acc vs the FTSE 100 that it tracks, it falls short by around -1% or -2% most years, so that's where they get their money from I imagine as that adds up over the years.

That's normal, funds take around 1-2%. There is evidence to suggest that you make better returns (long term) if you don;t use these funds because the average fund does not beat the market after they take out the commissions (long term)...better to use an ETF if all you are doing is putting money into the index, you'll pay £10 to buy, which is negligible if you are holding long term and only pay 0.5, 0.7% yearly fee, you'll get a dividend of around 4%.

 

[isatrader]

The product luckyhands mentioned (HSBC FTSE 100 Index Acc) says it only has a 0.3% built in fee so that's the same as most ETFs. But I just re-read his original question and I think he means if he sets up an ISA account with someone like Selftrade or TD Waterhouse. (i.e brokers that allow you to trade whatever you like) then he would in fact have to pay a brokerage fee of around £12.50 per trade, but if he bought it directly from a fund supermarket then he wouldn't have to pay that but he'd only be able to buy mutual funds and nothing else.

 

[SanMiguel]

The product luckyhands mentioned (HSBC FTSE 100 Index Acc) says it only has a 0.3% built in fee so that's the same as most ETFs. But I just re-read his original question and I think he means if he sets up an ISA account with someone like Selftrade or TD Waterhouse. (i.e brokers that allow you to trade whatever you like) then he would in fact have to pay a brokerage fee of around £12.50 per trade, but if he bought it directly from a fund supermarket then he wouldn't have to pay that but he'd only be able to buy mutual funds and nothing else.

£12.50, that's peanuts when you consider a fund takes 1-2% a year, it's just it's hidden in the performance. WHo cares about £12.50 if you're going to hold it long term?

 

[isatrader]

£12.50, that's peanuts when you consider a fund takes 1-2% a year, it's just it's hidden in the performance. WHo cares about £12.50 if you're going to hold it long term?

I agree, I use Selftrade personally so I have to pay the fees he's trying to avoid. But like you said if he is really planning on holding it long term then the fees will be mostly irrelevant.

 

[BlackBison]

Do some research and shop around. You should be able to get about a 0.5% fee from some tracker funds (eg. Vanguard).

 

[luckyhands]

ISAtrader was spot on with what I am aiming to do. I intend on drip feeding monthly into an index tracker (not an ETF) at a level where £10 would still be a too high % of what I'd like. At the moment I'm using the motley fool sharebuilder and using their £1.50 regular investments to my advantage with ETFs. However I've not used my ISA allowance this year so was thinking of putting it in an index fund (like the HSBC I mentioned, for example) on a monthly basis. I'm just wondering what the monevator was using when they said that the advantage of index funds was that they didn't have the broker fees! If I opened a self select ISA with HSBC, would this avoid the fees so I could drip feed for free?

 

[isatrader]

I think if you opened a self select ISA with HSBC then the index tracker would attract a broker fee as you'd be buying it properly on the market, whereas from what I read, if you buy it from the fund supermarket then it wouldn't have a fee as you are instead buying a promise that they will give you money if the fund goes up.